Government intervention

Price fixing
(not done too much, apart from the given
examples)

A price floor -> minimum wages

A price ceiling -> rent controls
There are always unintended
consequences that are opposite to the
intention!

https://courses.byui.edu/econ_150/econ_150_old_site/images/3-4%20Market%20Intervention_04.jpg

The size of the shortage or surplus depend on

the elasticity of the demand and supply curves.

https://courses.byui.edu/econ_150/econ_150_old_site/images/3-4%20Market%20Intervention_02.jpg

Taxes and Tariffs

A tariff is a tax on imported goods.

Expenditure taxes
Excise tax
fixed amount of money
per unit sold
cigarettes, petrol,
alcohol,
lowers supply => price
grows
The coloured area on the graph is
the tax revenue.
http://1.bp.blogspot.com/-as-nuUAGB4I/UIpDkNFXcmI/AAAAAAAAAEU/VkTVPzCKJZA/s1600/Capture.PNG

The tax incidence describes what part of the tax revenue is paid for by the producer and what part is
paid for by the consumer.

Sales tax
fixed % of the price of the unit old
Progressive/regressive sales tax
a rising/falling % of the price of the unit sold

Income taxes
Poll tax
fixed amount to pay per person
Flat tax
fixed % per person
Progressive/regressive tax
growing/falling % with income per person

Subsidies
A subsidy is basically a negative tax.

http://1.bp.blogspot.com/-SncGaK9_Z8Y/TupW9JgpuRI/AAAAAAAAAAo/CWS5_AKeDsg/s1600/Subsidy-on-Sellers.jpg

Again, there is tax incidence here. For a subsidy to have a significant effect, it is good to give
subsidies, where supply is elastic.