ECON 101 Government Intervention in Markets

Government Intervention in Markets

• Supply and Demand: Determine quantity and price; government influences outcomes via laws, regulations, and taxes.

Taxes

• Impact of Taxes: Affect take-home pay and pricing; include excise taxes (e.g., soda tax).

• Tax on Buyers vs. Sellers: Tax impacts prices buyers pay and sellers receive, with variance in statutory and economic burdens.

• Tax Incidence: Economic burden divides between buyers and sellers, depending on relative elasticities of demand and supply.

Subsidies

• Definition: Payments by government to encourage certain choices; act as negative taxes.

• Effect: Increase quantities demanded and supplied, lower prices for buyers, and raise prices for sellers.

Price Controls

• Price Ceilings: Maximum price set by government; can create shortages if below equilibrium.

• Price Floors: Minimum price set; can create surpluses if above equilibrium (e.g., minimum wage).

Quantity Regulations

• Quantity Regulation: Minimum/maximum quantities mandated or limited; includes mandates (e.g., health insurance) and quotas (e.g., legal marijuana purchases).