Government Intervention on Price System

How the Government Intervenes:
1. Regulations
  1. Minimum Price Control (Price Flooring)
    1. Purposes: (e.g.)
      1. To discourage the consumption & Production of Demerit Goods
      2. So Governments can support buy purchasing the products of farmers
  2. Maximum Price Control (Price Ceiling)
    1. Purposes: (e.g.)
      1. To prevent monopolistic exploition of consumers
      2. So necessities can be affordable for those with lower incomes
2. Financial Intervention
  1. Taxes
    1. Direct Taxes
      1. Examples:
        Corporate Tax
        Income Tax
    2. Indirect Taxes
      1. Specific Tax
        e.g.
        Excise duties on Alcohol or Tabacco
      2. Ad Valorem Tax
        e.g.
        Value Added Tax
      3. Purposes:
        Discourage Demerit Goods
    3. Other Taxes
      1. Proportional Tax
      2. Progressive Tax
      3. Regressive Tax
  2. Subsidies
    1. Purposes:
      1. To keep market prices of necessities low
      2. To encourage the consumption of merit goods
3. Government Provision
  1. Financed by the Tax revenue
    1. Transfer Payments
      1. Examples:
        Old Age Pensions
        Unemployment Benefits
        Child Benefits
    2. Direct Provision of Goods & Services
      1. Provision for those with low incomes
      2. Examples:
        Merit Goods
        Health Care
        Education
    3. Nationalism & Privatisation
      1. Nationalism
        Private -> Public Sector
        Advantages:
        Employees would feel more job security
        Profits are reinvested in the business
      2. Privatisation
        Public -> Private Sector
        Advantages:
        More Efficiency
        More competition

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Government Intervention on Price System

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