Market Failures Flashcards
What’s a subsidy?
A money grant to firms by the government to reduce costs of production and encourage an increase in output
Why are subsidies used?
Solve market failures
Encourage greater affordability
What’s an indirect tax?
Expenditure tax that increases costs of production for firms but can be transferred to consumers via higher prices
What’s a direct tax?
A tax on income that can’t be transferred
Why are indirect taxes used?
Raise government revenue
Solve market failures
What’s a minimum price?
A fixed price enacted by the government, usually set above the equilibrium market price
Why is minimum price used?
Protect producers from price volatility
What’s maximum price?
A fixed price enacted by the government, usually set below the equilibrium market price
Why is maximum price used?
Raise the affordability of necessity goods/services
Solve market failures
