1.4.1 Methods of intervention

• Subsidies can lead to market distortions by creating artificial demand.
• Regulation refers to the enforcement of rules by governments to control market activities
• Match the type of regulation with its example:

  Economic regulation ↔️ Utility price controls

  Social regulation ↔️ Food safety standards

  Environmental regulation ↔️ Emission standards
• Order the effects of regulation on businesses:

  1️⃣ Increases business costs

  2️⃣ May stifle innovation

  3️⃣ Requires effective enforcement
• Regulation can stifle innovation by increasing compliance costs for businesses.
• Regulation always leads to higher prices for consumers.

  False
• What is a price ceiling and its purpose?

  Maximum price below equilibrium ||| Ensure affordability
• Price controls are government-imposed limits on the prices that can be charged for goods and services in a market
• A price ceiling can lead to shortages because quantity demanded exceeds quantity supplied.
• A price floor can lead to surpluses because quantity supplied exceeds quantity demanded.
• Taxes are mandatory payments levied by the government on individuals and businesses to finance public goods and services
• A price floor is set above the market equilibrium.
• A price ceiling is a maximum price set below market equilibrium
• What is a price floor designed to protect?

  Producers
• Match the price control with its effects:

  Price Ceiling ↔️ Shortages, rationing

  Price Floor ↔️ Surpluses, inefficiency
• Rent control is an example of a price ceiling
• What are taxes used for by governments?

  Funding public services
• Direct taxes are levied on goods and services.

  False
• Indirect taxes are collected by retailers
• What is the formula for calculating the amount of tax?

  $Tax =$$Price_{tax} - Price_{no tax}$
• Match the type of tax with its example:

  Direct Tax ↔️ Income tax

  Indirect Tax ↔️ Sales tax
• What is the purpose of subsidies provided by the government?

  Encourage production or consumption
• Subsidies aim to lower prices for essential goods and services
• Subsidies can lead to market distortions.
• What is the mathematical formula for calculating the price after a subsidy?

  Price_{after subsidy} = Price_{original} - Subsidy Amount</latex>
• Regulation refers to the enforcement of rules by governments
• What is one purpose of government regulation in markets?

  Protect consumers
• Match the type of regulation with its example:

  Economic Regulation ↔️ Utility price controls

  Social Regulation ↔️ Food safety standards

  Environmental Regulation ↔️ Emission standards
• How does regulation on carbon emissions affect the cost of production for businesses?

  $P_{after} =$$P_{before} +$$C$
• State provision ensures universal access to essential goods and services regardless of income.
• What is nationalization and its primary aim?

  Government takeover for public benefit
• Privatization seeks enhanced efficiency and market responsiveness
• Match the ownership type with its characteristic:

  Nationalization ↔️ Government ownership

  Privatization ↔️ Private ownership
• What is the formula for calculating the value of a nationalized asset?

  $Asset Value =$$Cash Flows \div Discount Rate$