Government Intervention on Price System

Government Intervention on Price System

1. How the Government Intervenes:

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