Microeconomics

Microeconomics

Government Intervention
1. Subsidies
  1. Supply curve shifts to the right
    1. Costs the government more money
      1. Can cause an increase in tax
      2. Can cause a reallocation of funds
        Will cause an opportunity cost of reducing those services
2. Price Ceiling
  1. Reduces prices so things are more affordable for low income groups
    1. Leads to an excess of demand
      1. Can create a black market
        Costs the government more money to set regulations
3. Price Floor
  1. Especially on Demerit Goods
    1. Leads to an excess of supply
      1. Except on goods which demand is inelastic
4. Taxation
  1. On Demand
    1. Indirect Tax on goods
      1. Decrease demand
  2. On Supply
    1. Cause a shift to the left on the supply curve
      1. Increasing Price
5. Buffer Stock Schemes
  1. Governments buy up excess supply of agricultural goods and sell it when supply is low
  2. Agricultural Goods
    1. Volatile Supply
      1. Depends on factors such as weather
      2. Causes fluctuations in prices
  3. Advantages
    1. Maintains farmers income
    2. Consumers are able to afford goods
  4. Disadvantages
    1. Expensive
    2. Requires significant amount of start up capital
    3. Cost of storage
Merit & Demerit Goods
1. Merit
  1. Under-consumed in a free market
    1. Lack of information, people don't know the benefits
2. Demerit
  1. Over-consumed in a free market
    1. People are unaware of the lack of benefits the receive from consumption
      1. E.g. Smoking & Alcohol
  2. Negative Externalities
    1. When demerit goods are consumed they have a negative effect on a third party
      1. E.g. drinking to much alcohol and harm property of an innocent third party
    2. Production
      1. Social costs exceed private cost

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	Created by amierosepickering almost 11 years ago