Methods of Government Intervention in Markets

With the help of a diagram, explain how changes in a subsidy can influence the price and quantity sold of a product in a market and consider how expenditure on a subsidy is affected by the price elasticity of demand for the product.

Assess whether an increase in the tax on a demerit good is always the best way to reduce the consumption of such a product.

Explain what is meant by the incidence of an indirect tax and consider the extent to which it is possible for the incidence to pass from a producer of a good to a consumer of that good.

Assess the extent to which a government should subsidise the production of merit goods to increase the consumption of these goods.

With the help of a demand and supply diagram, explain how the introduction of an indirect tax affects equilibrium in a market and consider the extent to which the incidence of the tax will fall on the consumer.

Assess whether the improved provision of information is likely to be the best method to reduce the consumption of demerit goods.

With the help of an example of each, explain the difference between a merit good and a demerit good and consider whether a subsidy given to a merit good will always be effective in increasing its consumption.

Assess whether fixing a minimum price is likely to be the best policy to reduce the consumption of a demerit good.

State what is meant by a demerit good, and with the help of a diagram(s) explain how a tax on producers can improve the allocation of resources in the market for sugar-sweetened drinks.

Compare the likely effectiveness of a policy of imposing minimum prices on demerit goods with one other policy to improve public health and consider which policy is more likely to be successful.

Explain what is meant by consumer surplus and use diagrams to assess the impact on consumer surplus when an indirect tax is imposed on a good with price-elastic demand compared with the impact when the demand is price-inelastic.

A government is considering whether to adopt a policy of maximum price legislation in the market for food or to provide food subsidies to alleviate hunger in a period of food shortages.

Discuss whether maximum price legislation or food subsidies are more likely to alleviate hunger under these circumstances.

Explain, with the help of a diagram, the disadvantages to consumers of introducing a maximum price in a market for an essential food item.

Discuss whether the advantages of privatising an industry will always outweigh the disadvantages.

Distinguish between regressive and progressive taxes and explain whether you would use an income tax or a specific indirect tax to make post-tax incomes more equal.

Discuss whether subsidies on the production of all types of good will lead to an improved allocation of resources.

With the use of diagrams, explain how the price elasticity of demand for a product influences the incidence of an indirect tax on that product.

‘Indirect taxes reduce consumer surplus and should therefore never be imposed in a mixed economy.’ Discuss this view.

With the help of a supply and demand diagram, explain how the introduction of an indirect tax on a good would affect the surplus enjoyed by the consumers of that good.

Discuss whether it is better to introduce an indirect tax or to adopt policies to improve consumers’ knowledge and understanding to deal with the problem of demerit goods.