Effects of Government Intervention in Markets - AP Microeconomics

Supply curve shifts leftward. Tax adds to production costs, reducing supply.

Consumer surplus typically increases. Lower prices from increased supply benefit consumers.

Smaller shortage compared to elastic demand. Limited demand response reduces shortage severity.

It can create a shortage if set below equilibrium price. Quantity demanded exceeds quantity supplied at ceiling price.

It can create a surplus if set above equilibrium price. Quantity supplied exceeds quantity demanded at floor price.

A payment from the government to producers to encourage production. Reduces producer costs, making production more profitable.

It lowers the price and increases the quantity sold. Subsidy shifts supply right, creating new equilibrium.

A financial charge imposed by the government on a product. Increases production costs for suppliers.

It raises the price and reduces the quantity sold. Tax shifts supply left, creating new equilibrium.

Price controls, taxes, and subsidies can cause deadweight loss. Government interventions prevent efficient market outcomes.

It typically decreases consumer surplus. Higher prices reduce consumer benefit.

It typically increases producer surplus. Subsidies increase producer revenue and profit.

The division of the tax burden between buyers and sellers. Depends on price elasticities of buyers and sellers.

By the relative elasticities of supply and demand. Less elastic side bears greater tax burden.

To encourage production or consumption of a good. Government seeks to correct market failures or support industries.

Equilibrium quantity typically increases. Lower costs increase production at all price levels.

They internalize the external cost, reducing the quantity produced. Pigouvian taxes align private and social costs.

They increase the production or consumption of a beneficial good. Aligns private and social benefits through price incentives.

A shortage occurs. Price below equilibrium creates excess demand.

Greater burden falls on consumers with less elastic demand. Less elastic side bears proportionally greater burden.

It typically increases producer surplus. Higher guaranteed price benefits producers despite surplus.

Greater tax burden on consumers; smaller quantity change. Consumers absorb most tax with limited demand response.

Increases equilibrium quantity and decreases price. Returns market to original equilibrium point.

Results in a price decrease; no quantity change. Subsidy benefit goes entirely to consumers via price.

Greater tax burden on consumers; price increases. Elastic supply shifts burden toward consumers.

A minimum price set by the government above equilibrium. Prevents market price from falling to equilibrium level.

The difference between what producers receive and the minimum they would accept. Measures producer benefit from market participation.

It raises the price and reduces the quantity sold. Tax shifts supply left, creating new equilibrium.

Price controls, taxes, and subsidies can cause deadweight loss. Government interventions prevent efficient market outcomes.