Please enable JavaScript.
Coggle requires JavaScript to display documents.
Government interventions in the market - Coggle Diagram
Government interventions in the market
Taxes
Tax on a good or service
Consequences
to internalise cost in consumption and production
raise tax revenue to finance its expenditure
Subsidies
finance by the government
Consequences
to encourage consumption of merit goods which confer external benefits to the society
to enable export-oriented industries to compete with foreign industries
Price controls
Price ceiling
Maximum price that a producer can charge for a good legally
Consequence
protect buyers of the product
Achieve fairer distribution of essential goods and services
ensures affordability for lower income households
How well it works
First come first serve basis
Seller's preference
Government rationing
Unintended consequences
impacts on related markets
rise of black markets
Alternative to a price ceiling is a subsidy
Price Floor
Minimum price a producer can charge for a good legally
Objectives
to maintain incomes of unskilled workers
to raise revenue of producers
How well it works
permanent excess supply
Unintended consequences
opportunity costs of government funds
Heightened firm's complacency
Quotas
government caps the amount of goods that can be transacted in the market below what would otherwise prevail, forcing up the price
How well it works
Usefulness of elasticity concepts to the government
Effectiveness of the tax or subsidy imposed
Estimate the level of tax revenue collected
Calculate the incidence / burden of the tax borne between consumers and producers
Effectiveness of exchange rate policy on balance of trade
Amount of tax to impose to meet its objective