ECON 101 Government Intervention in Markets

A set of flashcards covering key concepts from the lecture on government intervention in markets, including taxes, subsidies, price controls, and quantity regulations.

What is the role of government intervention in markets?

Government influences market outcomes through laws, regulations, and taxes affecting supply and demand.

What is an excise tax and its purpose?

An excise tax is a tax on specific goods, like sugary drinks, intended to reduce consumption due to health risks.

How does a tax on buyers affect the price consumers pay?

Consumers pay the posted price plus the tax amount.

What is a statutory burden regarding taxes?

The burden assigned by the government to send a tax payment.

Define economic burden in the context of taxes.

The burden created by changes in the after-tax prices faced by buyers and sellers.

What is tax incidence?

The division of the economic burden of a tax between buyers and sellers.

How does the elasticity of demand and supply affect tax incidence?

The more inelastic the curve, the more tax burden that party will bear.

What is a subsidy and how does it affect market prices?

A subsidy is a payment by the government that lowers prices for buyers and increases prices received by sellers.

What are price ceilings?

A maximum price that sellers can charge, set by the government.

What constitutes a binding price ceiling?

A price ceiling that is set below the equilibrium price, preventing the market from reaching it.

What is a price floor?

A minimum price set by the government that sellers can charge.

Explain the rationale behind establishing a price floor.

To help sellers raise prices or reduce quantity sold, such as minimum wage to aid low-wage workers.

What is a quantity regulation?

A minimum or maximum quantity of a good that can be sold, often enforced through mandates or quotas.

Give an example of a mandate in quantity regulation.

A health insurance mandate requiring consumers to purchase health insurance.

What is a quota in economics?

A limit on the maximum quantity of a good that can be bought or sold.