Government Interventions Flashcards
What is an indirect tax?
a tax taken through purchases rather than directly from income
What is the indirect tax diagram?
What is the evaluation for an indirect tax?
- depends on PED of taxed good
- could be argued as a regressive tax
What is a subsidy?
a subsidy is money the government awards to companies to reduce the cost of the good for consumers
What is the subsidy diagram?
What is the evaluation for a subsidy
- depends on PED of other goods
- costs government money
- people may have other reasons than price - behavioural economics
What is a maximum/minimum price?
a government set price that a firm must adhere to
What is the diagram for max/min price?
What is the evaluation for max/min price?
- could damage firm’s profit - less options
- could lead to poorer quality
- min price may be too high for people - arguably regressive
What is a windfall tax?
a one-off tax when an industry or firm has above-average supernormal profits
What is the evaluation for a windfall tax?
- may discourage innovation
- could be viewed as unfair to the firm - taxed for being successful
What is a tax break?
a lowering of the tax burden on taxpayers
What is the evaluation of tax breaks?
- less money brought in for public services
- firms may choose to retain money as profit
What is breaking up monopolies?
when the government splits a company into smaller firms to encourage competition
What is the evaluation of breaking up monopolies?
- job losses in the firm
