Government Intervention in Different Market Structures - AP Microeconomics
- Identify the effect of negative externalities.
- Overproduction and social costs. Private costs below social costs cause excess production.
- What is the effect of a tax on market equilibrium?
- Raises equilibrium price, lowers quantity. Government levy shifts supply curve leftward.
- Identify the main effect of tariffs.
- Increases domestic prices of imported goods. Import taxes raise costs for foreign goods.
- Identify the effect of positive externalities.
- Underproduction and social benefits. Private benefits below social benefits cause insufficient production.
- What is the main purpose of antitrust policy?
- To prevent anti-competitive practices. Laws prevent monopolies and promote competition.
- What is the effect of tariffs on domestic consumers?
- Decreases consumer surplus. Higher import prices hurt domestic buyers.
- What type of good is most affected by a subsidy?
- Necessities with inelastic demand. Essential goods benefit most from cost reduction.
- Identify the effect of a tax on consumer surplus.
- It decreases consumer surplus. Higher prices reduce consumer benefits from trade.
- What is regulatory capture?
- When regulators favor the industry they regulate. Regulators develop close ties with industry interests.
- How does a price ceiling affect producer surplus?
- It decreases producer surplus. Artificially low prices reduce producer profits.
- How does a price floor affect consumer surplus?
- It decreases consumer surplus. Artificially high prices increase consumer costs.
- Which factor determines who bears the burden of a tax?
- Elasticity of supply and demand. Less elastic side bears more tax burden.
- What is the impact of a tax on inelastic demand?
- Higher tax revenue with less quantity change. Consumers can't easily reduce quantity when taxed.
- Identify the main goal of government intervention in a monopoly.
- To increase social welfare. Monopolies create deadweight loss from underproduction.
- Identify the effect of a binding price ceiling.
- It creates a shortage in the market. Quantity demanded exceeds quantity supplied at the ceiling price.
- What is a price floor?
- A minimum legal price set above equilibrium. Prevents prices from falling below the set minimum.
- What is an externality?
- A cost or benefit affecting third parties. Spillover effects not reflected in market prices.
- What does a tax incidence depend on?
- The relative elasticities of supply and demand. More elastic side bears less tax burden.
- What is a price ceiling?
- A maximum legal price set below equilibrium. Prevents prices from rising above the set limit.
- What effect does a tax have on supply?
- It decreases supply, shifting the curve left. Higher production costs reduce willingness to supply.
- What is a Pigovian tax?
- A tax to correct a negative externality. Makes polluters pay for social costs imposed.
- What is the effect of a subsidy on foreign competition?
- It decreases foreign competitiveness. Lower costs help domestic firms compete globally.
- Identify the effect of a subsidy on producer surplus.
- It increases producer surplus. Lower costs or higher prices benefit producers.
- What is the result of correcting a positive externality?
- Increase in the external benefit. Encouraging externality improves social welfare.
- What causes deadweight loss in taxation?
- Market distortions reducing quantity traded. Taxes discourage beneficial trades between buyers and sellers.
- What is the purpose of a subsidy?
- To lower the cost of production or consumption. Government payment reduces costs for producers or consumers.
- How does a subsidy affect a monopolist's output?
- It increases the monopolist's output. Lower marginal costs enable increased production.
- What is a common result of government-imposed quotas?
- Increased prices due to limited supply. Restricted quantity drives up market prices.
- Identify a possible negative effect of price controls.
- Market distortions and inefficiencies. Artificial prices create shortages or surpluses.
- What is the effect of a subsidy on market equilibrium?
- Lowers equilibrium price, raises quantity. Government payment shifts supply curve rightward.
- What is the result of correcting a negative externality?
- Reduction of the external cost. Internalizing externality improves social welfare.
- What is the effect of a quota?
- Limits the quantity of a good that can be sold. Creates artificial scarcity by restricting supply.
- Identify the effect of a binding price floor.
- It creates a surplus in the market. Quantity supplied exceeds quantity demanded at the floor price.
- What is the effect of a tax on a monopolist's output?
- It reduces the monopolist's output. Higher marginal costs lead to less production.
- What effect does a subsidy have on supply?
- It increases supply, shifting the curve right. Lower production costs increase willingness to supply.
- What is the effect of tariffs on domestic producers?
- Increases producer surplus. Reduced foreign competition benefits domestic firms.
- What is deadweight loss?
- A loss of total welfare due to inefficiency. Occurs when markets don't achieve allocative efficiency.
- What is the purpose of a tax?
- To raise revenue and/or discourage consumption. Government charges increase costs to influence behavior.