eco1104 - government intervention

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5 Terms

1
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Three Reasons to Intervene

- Correcting Market Failures: Monopoly, externalities

- Changing the distribution of benefits (redistribution)

- Encouraging or discouraging consumption of certain goods

2
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Price ceiling

A maximum legal price at which a good can be sold

oTypically placed on essential goods and services such as good, gasoline, and electricity

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Price floor

A minimum legal price at which a good can be sold

oTypically placed on agricultural goods that are risky to produce

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Taxes

either the buyer or the seller must pay some extra amount to the government on top of the sale price

-Typically placed on seller

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Subsidies

Either the buyer or the seller receives a payment from the government that lowers the sale price