3.6.3 Impact of government intervention on market outcomes

• Government intervention in markets refers to actions taken by the government to influence or modify the outcomes of market activities
• Price controls involve setting maximum or minimum prices
• Taxes are imposed to reduce consumption of harmful products or raise revenue.
• Subsidies provide financial assistance to producers or consumers
• Regulations enforce rules and standards to improve quality, safety, or environmental protection
• Match the type of government intervention with its objective:

  Price Controls ↔️ Protect consumers or guarantee producer incomes

  Taxes ↔️ Reduce harmful consumption or raise revenue

  Subsidies ↔️ Encourage production or consumption

  Regulations ↔️ Improve quality, safety, or environmental protection
• Order the following types of government intervention by their example from the study material:

  1️⃣ Rent control in cities

  2️⃣ Excise tax on cigarettes

  3️⃣ Subsidies for renewable energy

  4️⃣ Environmental protection laws
• Subsidies for renewable energy aim to encourage production or consumption.
• Regulations, such as environmental protection laws, aim to improve quality, safety, or environmental protection
• Match the type of government intervention with its objective:

  Price Controls ↔️ Protect consumers or guarantee producer incomes

  Taxes ↔️ Reduce harmful consumption or raise revenue

  Subsidies ↔️ Encourage production or consumption

  Regulations ↔️ Improve quality, safety, or environmental protection
• Government intervention aims to correct market failures, achieve social objectives, or improve economic efficiency.
• Subsidies encourage production or consumption
• Regulations enforce rules and standards to improve quality, safety, or environmental protection
• Taxes can reduce harmful consumption and raise government revenue.
• Subsidies for renewable energy encourage production or consumption, and promote innovation
• Match the type of government intervention with its potential impact:

  Price Controls ↔️ Shortages or surpluses

  Taxes ↔️ Reduced consumption and higher prices

  Subsidies ↔️ Increased supply and lower costs

  Regulations ↔️ Improved quality and higher costs
• Government interventions always have only positive effects on market outcomes.

  False
• To evaluate the effectiveness of government intervention policies, we must consider their impact on market outcomes
• Order the main types of government intervention:

  1️⃣ Price Controls

  2️⃣ Taxes

  3️⃣ Subsidies

  4️⃣ Regulations
• Subsidies can distort market signals and lead to inefficiency.
• Match the type of government intervention with its potential benefits:

  Price Controls ↔️ Protects consumers, supports producers

  Taxes ↔️ Raises revenue, reduces negative externalities

  Subsidies ↔️ Encourages production, supports industry growth

  Regulations ↔️ Ensures consumer safety, enhances environmental protection
• Price controls can protect consumers and support producers, but may reduce supply efficiency
• Taxes on goods increase producer surplus and lower prices for consumers.

  False
• What is a drawback of taxes on goods?

  Lower producer surplus
• Subsidies encourage production and support industry growth, but can distort market signals
• Regulations can ensure consumer safety but may lead to higher prices and reduced supply.
• What is an example of a government intervention that reduces consumption and raises revenue?

  Tax on cigarettes