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Summary Cambridge International AS Level and A Level Economics Coursebook with CD-ROM, ISBN: 9780521126656 Unit 3 - Government intervention in the price system £5.49
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Summary Cambridge International AS Level and A Level Economics Coursebook with CD-ROM, ISBN: 9780521126656 Unit 3 - Government intervention in the price system
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A thorough yet summarised review of government microintervention, where all the important information is without having to waste your time reading through the unnecessary bits. Here is everything you need to know, not a word more, not a word less.

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  • Chapter 3
  • November 14, 2022
  • 5
  • 2021/2022
  • Summary

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Government microeconomic intervention


Governments intervene in markets because of market failure.

Governments intervene by:

1. Regulations
2. Taxes and subsidies
3. Government provision


Regulations

Maximum price: A price below the market equilibrium that is imposed to increase the
quantity demanded of a good.


S
Price




P1



P2




D


0 Qs Q1 Qd

As the price is now lower, quantity supplied has decreased as suppliers are less
willing to produce as much and consumers now demand more at the price.

Minimum price: A price which is placed above the equilibrium to decrease the
quantity demanded, consequently increasing the quantity supplied.

, S
Price


P2


P1




D

Qd Q1 Qs

Quantity


Buffer stock schemes: A type of commodity agreement to limit price fluctuations by
buying and selling goods.

Taxes and subsidies

Taxation: A fee charged by the government on a product, income or activity.

Direct taxes: Tax that is levied on income and cannot be avoided. eg. income tax,
corporation tax, national insurance contributions

Indirect taxes: Tax levied on goods and services. eg. VAT, council tax, local
government tax

Incidence: The extent to which an individual or organisation suffers from the
imposition of a tax. This may be by a producer or consumer or both.

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