Theme 1 AO4 Flashcards
1
Q
The imposition of a maximum price is beneficial for the consumer as it makes the product more affordable. Evaluate.
A
Max price > sellers are making smaller profit margins > stop/reduce supplying that good > shortage.
2
Q
Taxing a firm causing negative externalities of production will remove them. Evaluate.
A
However we do not know the value of Q* and therefore may tax them too much causing a change in the market equilibrium or tax them too little causing the negative externalities to still be present.
