L6 - Government Policies

Question 1

Why do Governments intervene in markets?

Answer 1

To make markets fairer

Question 2

What is a price ceiling?

Answer 2

A set price that is placed if the intial price deemed too high by policy makers and Govts.

(SEE DIAGRAM IN NOTES)

Question 3

What is a rent control?

Answer 3

Suggestion on how to solve London rent prices. In short run not enough time to provide more property. Hence LR supply solves this.

To protect rentors from rent that’s too high.

(SEE DIAGRAM ON NOTES)

Question 4

What are some alternatives to Rent Control?

Answer 4

• Cap on benefits
• Building new houses

(SEE DIAGRAM ON NOTES)

Question 5

What is a minimum wage/ Price Floor?

Answer 5

A control on wages to ensure people gain reasonable wages

SEE DIAGRAM ON NOTES

Question 6

What are the results of a minimum wage?

Answer 6

As a result of the minimum wage being established and demand contracting.

-Supply of labour can be seen to shift left as people pull out of that labour market since they can’t get job.

(SEE DIAGRAM BELOW)

Question 7

What is incidence of tax?

Answer 7

Distribution of tax paid by suppliers and consumers

Question 8

What is an Ad Valorem tax?

Answer 8

% of price
A tax on indirect prices.
-Typically done on VAT and Sales Tax

(See diagram below)

Question 9

What is a Specific Tax?

Answer 9

Fixed amount of tax paid per unit sold

SEE DIAGRAM ON NOTES

Question 10

What does Ad Valorem tax depend on?

Answer 10

Incidence depends on Elasticity

SEE DIAGRAM ON NOTES

Question 11

What was the Luxury tax in the 90’s? (CASE STUDY)

Answer 11

In 1990, US Govt. adopted new luxury items like yachts

-The Goal was to raise tax revenues from the wealthiest in society

(SEE DIAGRAM ON NOTES)