Economics - Unit 4: Government Intervention

Under what conditions of tax incidence when the producer burden is greater than the consumer burden?

when the demand is elastic or when the supply is inelastic

Under what conditions of tax incidence when the consumer burden is greater than the producer burden?

When the demand is inelastic or when the supply is elastic

Define taxes

Compulsory fees levied on individuals or corporations by the government

What is direct tax and indirect tax?

Direct tax is the tax on income or profit; indirect tax is the tax on expenditure on goods and services

Define subsidy.

The amount of money paid by the government to producers to lower cost of production

State reasons why subsidies are provided.

To lower prices of essential goods in hopes of increasing their consumption, or to guarantee the supply of products that are deemed necessary for the economy

Define price ceiling.

The legal maximum price imposed by the government to help reduce the price of necessities or merit goods

What phenomena can be found when price ceiling is set below the equilibrium?

shortage

What phenomena can be observed if the price ceiling is above the equilibrium?

surplus

Define price floor.

A legal minimum imposed by the government to help increase the income of producers of goods & services deemed important

What economic phenomena can be observed when price floor is above the equilibrium?

surplus

What economic phenomena can be observed when price floor is above the equilibrium?

None, because no effect