Governments and the Market

Question 1

what are 2 ways governments can control prices

Answer 1

Price ceiling

price floor

Question 2

what are 2 types of government taxes

Answer 2

fixed taxes: taxed on good as sum per unit eg fuel

ad valorem taxes: taxed on percentage of good eg VAT

Question 3

discuss the incidence of indirect taxes

Answer 3

Producers Share
greater, the less elastic the supply and the more elastic the demand.
Consumers Share
Greater, the less elastic the demand and the more elastic the supply.

Question 4

what is a public good

Answer 4

Commodities or services that benefit all members of society, and which are often provided for free through public taxation.
Not Excludable & Not Rival in Consumption
Problem arises of Missing Markets and Free Riders

Question 5

what are merit goods

Answer 5

Goods that the government feels people will under-consume and which thought to be subsidised or provided free.
For example, health and education.

Question 6

what are demerit goods

Answer 6

Goods which can have a negative impact on the consumer – but these damaging effects may be unknown or ignored by the consumer.
Usually have negative externalities, where consumption causes a harmful effect on a third party.
For example, Alcohol, Cigarettes, Drugs, Junk food and Gambling

Question 7

why does government intervene in agriculture and how

Answer 7

to reduce price fluctuations
to raise farm incomes
to protect rural communities

Buffer Stocks
involve the government buying food and placing it in store when harvests are good, and then releasing the food back on to the market when harvests are bad.
Subsidies
High Fixed Prices
Reducing Supply
Structural Policies