Micro 1.4.1 Government intervention in markets Flashcards
What effect does taxation have on supply and price?
Taxation reduces supply, leading to an increase in price, which discourages production/consumption of goods with negative externalities.
What is an ad valorem tax?
An ad valorem tax is a percentage tax, such as VAT, which makes the supply curve steeper.
What is a specific tax?
A specific tax is a fixed amount, such as a 5p tax on chocolate, regardless of the price of the good.
Example: A 5p tax on chocolate.
What is the effect of subsidies on supply and price?
Subsidies increase supply, leading to a reduced price, which encourages production/consumption of goods with positive externalities.
What is a minimum price?
A minimum price is set by the government above the market price to discourage consumption of a particular good.
What happens to supply and demand at a minimum price?
At a minimum price, firms extend supply due to higher prices, while consumers contract demand, resulting in excess supply/surplus.
What is a maximum price?
A maximum price is set by the government below the market price to encourage consumption of a particular good.
What happens to supply and demand at a maximum price?
At a maximum price, firms contract supply due to lower prices, while consumers extend demand, resulting in excess demand/shortage.
What are trade pollution permits?
Trade pollution permits are issued by the government to tackle negative externalities, allowing firms to trade permits based on their pollution levels.
What is state provision of public goods?
State provision of public goods involves the government providing goods or services funded by tax revenue, addressing the free rider problem.
How does the government provide information to consumers?
The government provides information to consumers to correct information gaps.
What is regulation in the context of government intervention?
Regulation involves the government imposing rules on the production or consumption of goods or services, often backed by legal penalties.
Draw a digram for ad valorem tax
Draw a digram for minimum price
Draw a digrm for maximum price
Draw a digram for specific tax
