Topic 4

Question 1

what are the 3 types of governments interventions

Answer 1

1. price restrictions
2. quantity restrictions
3. taxes and subsidies

Question 2

what is a price floor and what are the issues with it (draw graph w/ surpluses)

Answer 2

gov decrees price can’t fall below a certain level (good for producers)

issues: price can be too high creating a surplus (MB>MC = DWL)

Question 3

what is a price ceiling and what are its issues (draw graph w/ surpluses)

Answer 3

gov decrees price cannot rise above a certain level (good for consumers)

issues: price too low creates a shortage so suppliers get no profit so will reduce quantity which means bribery starts
MB>MC = DWL)

Question 4

what is a quantity restriction and what are the 3 types

Answer 4

gov intervenes by placing restrictions on quantity produced consumers which can create a shortage

1. prohibition (prohibit purchase/sale)
2. quotas (giving producer a set number to produce)
3. permits

Question 5

what is a permit (quantity restriction) and who issues it

Answer 5

gov issues permits allowing agent to operate in market or produce/consume (eg housing market/taxi market/ fishing + hunting/carbon emissions). Can be issued by gov or traded and can be at cost or free

Question 6

draw a quota on a graph with effected surpluses

Answer 6

wee

Question 7

what is a tax and what is its outcome

Answer 7

consumers pay higher price and producers recieve lower price.
The outcome: a change in supply will increase price which consumers and lower price which sellers recieve after tax. Less produced and consumed = quantity demanded and supplied is reduced.

Question 8

what is a subsidy and what is its outcome

Answer 8

producers will recieve price increase and consumers will pay lower price.

outcome: price decreases and quantity supplied and demanded increases.

Question 9

draw tax and subsidy graph

Answer 9

yeee

Question 10

explain the resulting tax incidence if

1. gradient of demand = supply
2. gradient of demand steeper than supply
3. gradient of supply is steeper than demand

Answer 10

1. tax incidence equal between buyers and sellers
2. buyers less price sensitive than sellers and will absorb more tax burden as they are more willing to pay
3. buyers more price sensitive than sellers so buyers will absorb less of tax