Government Intervention

Price Ceiling

A maximum price set by the government below the equilibrium price to allow consumers to pay a lower price for goods and services.

Price Floor

A minimum price set by the government above the equilibrium price to ensure producers receive a higher price for their goods and services.

Subsidy

An amount of money paid by the government to a firm, per unit of output, to encourage production and consumption.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.

Direct Provision

When the government produces the good or service directly to ensure supply.

Specific Tax

A specific, or fixed, amount of tax imposed upon a product, for example, $1 per unit sold.

Percentage Tax (Ad Valorem Tax)

A tax that is a percentage of the selling price, causing the supply curve to shift up by the amount of the tax.

Tax Burden

The distribution of the tax impact between consumers and producers, influenced by price elasticity of demand and supply (PED and PES).

Revenue

Calculated as the product of price and quantity sold (Revenue = P ∗ Q).

Inefficient Producers

Producers that remain in business due to government intervention, which may create a barrier to fair trade.