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1l the quest for political stability: germany, 1871-1991
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Indirect taxes and government intervention in microeconomics explained for AQA A-level Economics students
Indirect taxes are a key tool for government intervention in markets, used to address market failures and raise revenue. This summary covers the definition, diagrams, and impacts of indirect taxes, as well as other forms of government intervention like subsidies and price controls.
06/04/2023
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Indirect taxes are a form of government intervention in microeconomics that increases production costs for firms but can be passed on to consumers through higher prices.
Key points about indirect taxes:
Definition: An indirect tax is an expenditure tax that increases costs of production for firms but can be transferred to consumers via higher prices.
The diagram for an indirect tax shows:
Example: Wine duty of £2.23 per bottle is an example of a specific indirect tax.
Indirect taxes can solve market failures by internalizing negative externalities:
Highlight: Indirect taxes are most effective when demand is price elastic and can accurately target the externality.
Potential drawbacks of indirect taxes include:
This page discusses maximum prices as a form of government intervention and introduces the concept of allocative efficiency.
Maximum prices are price ceilings set by the government below the equilibrium market price.
Key points about maximum prices:
Definition: A maximum price is a fixed price (price ceiling) enacted by the government, usually set below the equilibrium market price.
The maximum price diagram shows:
Highlight: Maximum prices can improve affordability for consumers but may lead to shortages and black markets.
Allocative efficiency is a key concept in microeconomics related to optimal resource allocation.
Key points about allocative efficiency:
Definition: Allocative efficiency is achieved when resources are perfectly allocated to follow consumer demand, maximizing social welfare.
Types of market failures preventing allocative efficiency include:
Highlight: Understanding market failures is crucial for identifying when government intervention may be necessary to achieve allocative efficiency.
This page covers two additional forms of government intervention in microeconomics: subsidies and minimum prices.
Subsidies are government grants to firms that reduce production costs and encourage increased output.
Key points about subsidies:
Definition: A subsidy is a money grant to firms by the government to reduce costs of production and encourage an increase in output.
The subsidy diagram shows:
Highlight: Subsidies can solve under-consumption/production of goods with positive externalities by making marginal private cost (MPC) equal to marginal social cost (MSC).
Potential issues with subsidies include:
Minimum prices are price floors set by the government above the equilibrium price.
Key points about minimum prices:
Definition: A minimum price is a fixed price (price floor) enacted by the government, usually set above the equilibrium price.
The minimum price diagram illustrates:
Highlight: Minimum prices can effectively support producers but may lead to unintended consequences such as excess supply.
This page focuses on negative externalities as a type of market failure in Economics A Level.
Key points about negative externalities:
Definition: Negative externalities are harmful effects on third parties not reflected in the market price of a good or service.
The diagram for negative externalities shows:
Highlight: Understanding negative externalities is crucial for analyzing the need for government intervention in markets, such as through indirect taxes or regulations.
Examples of negative externalities include:
Example: The production of steel may create air and water pollution, imposing costs on society not reflected in the market price of steel.
Government interventions to address negative externalities can include:
Vocabulary: Internalizing externalities refers to making private actors account for the social costs or benefits of their actions, often through government intervention.
Understanding negative externalities is essential for:
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El
@wls.065
·
13 Followers
Follow
Indirect taxes and government intervention in microeconomics explained for AQA A-level Economics students
Indirect taxes are a key tool for government intervention in markets, used to address market failures and raise revenue. This summary covers the definition, diagrams, and impacts of indirect taxes, as well as other forms of government intervention like subsidies and price controls.
Access to all documents
Join milions of students
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By signing up you accept Terms of Service and Privacy Policy
Indirect taxes are a form of government intervention in microeconomics that increases production costs for firms but can be passed on to consumers through higher prices.
Key points about indirect taxes:
Definition: An indirect tax is an expenditure tax that increases costs of production for firms but can be transferred to consumers via higher prices.
The diagram for an indirect tax shows:
Example: Wine duty of £2.23 per bottle is an example of a specific indirect tax.
Indirect taxes can solve market failures by internalizing negative externalities:
Highlight: Indirect taxes are most effective when demand is price elastic and can accurately target the externality.
Potential drawbacks of indirect taxes include:
Access to all documents
Join milions of students
Improve your grades
By signing up you accept Terms of Service and Privacy Policy
This page discusses maximum prices as a form of government intervention and introduces the concept of allocative efficiency.
Maximum prices are price ceilings set by the government below the equilibrium market price.
Key points about maximum prices:
Definition: A maximum price is a fixed price (price ceiling) enacted by the government, usually set below the equilibrium market price.
The maximum price diagram shows:
Highlight: Maximum prices can improve affordability for consumers but may lead to shortages and black markets.
Allocative efficiency is a key concept in microeconomics related to optimal resource allocation.
Key points about allocative efficiency:
Definition: Allocative efficiency is achieved when resources are perfectly allocated to follow consumer demand, maximizing social welfare.
Types of market failures preventing allocative efficiency include:
Highlight: Understanding market failures is crucial for identifying when government intervention may be necessary to achieve allocative efficiency.
Access to all documents
Join milions of students
Improve your grades
By signing up you accept Terms of Service and Privacy Policy
This page covers two additional forms of government intervention in microeconomics: subsidies and minimum prices.
Subsidies are government grants to firms that reduce production costs and encourage increased output.
Key points about subsidies:
Definition: A subsidy is a money grant to firms by the government to reduce costs of production and encourage an increase in output.
The subsidy diagram shows:
Highlight: Subsidies can solve under-consumption/production of goods with positive externalities by making marginal private cost (MPC) equal to marginal social cost (MSC).
Potential issues with subsidies include:
Minimum prices are price floors set by the government above the equilibrium price.
Key points about minimum prices:
Definition: A minimum price is a fixed price (price floor) enacted by the government, usually set above the equilibrium price.
The minimum price diagram illustrates:
Highlight: Minimum prices can effectively support producers but may lead to unintended consequences such as excess supply.
Access to all documents
Join milions of students
Improve your grades
By signing up you accept Terms of Service and Privacy Policy
This page focuses on negative externalities as a type of market failure in Economics A Level.
Key points about negative externalities:
Definition: Negative externalities are harmful effects on third parties not reflected in the market price of a good or service.
The diagram for negative externalities shows:
Highlight: Understanding negative externalities is crucial for analyzing the need for government intervention in markets, such as through indirect taxes or regulations.
Examples of negative externalities include:
Example: The production of steel may create air and water pollution, imposing costs on society not reflected in the market price of steel.
Government interventions to address negative externalities can include:
Vocabulary: Internalizing externalities refers to making private actors account for the social costs or benefits of their actions, often through government intervention.
Understanding negative externalities is essential for:
Access to all documents
Join milions of students
Improve your grades
By signing up you accept Terms of Service and Privacy Policy
Average app rating
Pupils love Knowunity
In education app charts in 12 countries
Students have uploaded notes
iOS User
Philip, iOS User
Lena, iOS user
