Government intervention

• What is incidence 


  Whom the benefit of the subsidy falls upon more between the producer and the consumer
• Who benefits more from a subsidy of an inelastic good


  The consumer
• Who benefits more from a subsidy if the good is elastic 


  The producer
• where is a subsidy targeted 


  At positive externalities
• What is a subsidy


  Financial package (in the form of a grant/tax break) given by the government to the producers to incentivise production and lower market price
• What is an indirect tax


  a tax on a good/service payed for by the producer and passed into the consumer
• What is specific tax


  The same amount is taxed per jnit
• What is ad valorem tax and what is the current rate 


  Tax according to value (vat) 20%
• Who pays for tax on inelastic items


  Consumer, no incidence on the producer
• Who pays for tax on elastic items


  Producer
• When is indirect tax unsuccessful 


  On elastic products
• what is a minimum price

  a price floor that producers cannot legally sell below
• what is a maximum price

  occurs when a government sets a limit legally on the price of a good/service with the aim of reducing prices below the market equilibrium price
• examples of maximum price

  rent control, water companies, fuel bills, pay day lenders, ceo pay
• what is a problem with a minimum price

  excess supply
• where must maximum price be set in order to have any effect on price and output

  below the normal free market equilibrium
• when does a government failure occur

  when a government attempts to correct a market failure yet the intervention exacerbates the market failure or creates a new one
• what acronym is used to remember government failure

  CRIPPL
• what does crippl stand for

  cost outweighs benefit, regulatory capture, information gaps, political/self interest, policy myopia, law of unintended consequences