Government Intervention In Markets

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Government intervention in markets aims to address market failures, abuse of market power, and improve equitable distribution of income and wealth. Some forms of intervention include price ceilings which place restrictions on prices rising above a certain level and can cause shortages. Price floors prevent prices from falling below a level and result in surpluses. Subsidies grant money to industries and lower prices for consumers while increasing revenue for producers. Quotas restrict the amount individual producers can produce and shift the supply curve left.

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Government Intervention in Markets

Main Objectives ,[object Object],[object Object],[object Object],[object Object]

Selected Forms of Government Intervention ,[object Object],[object Object],[object Object]

Price Ceilings ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Rent Control Short Run Quantity Price Price Ceiling New Quantity Demanded

Rent Control Long Run Q Price Price Ceiling Quantity Demanded Quantity Supplied

Floor Prices ,[object Object],[object Object],[object Object],[object Object],[object Object]

Minimum Wage Labour Demanded Labour Supplied Labour Supplied Labour Demanded Q Price Minimum Wage (Price Floor)

Subsidies ,[object Object],What consumers now pay Quantity Price Subsidy Price producers receive

Subsidies ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Quotas ,[object Object],[object Object],[object Object],[object Object],[object Object]

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Exam questions involving drawing subsidy diagrams are typically found demanding by many students so please remember to revise this area of the course properly and get in lots of practise for this type of government intervention. If your analysis is accurate, you will frequently be given plenty of scope to critically evaluate the role of subsidies particularly when it comes to addressing different types of market failure. Strong evaluation understands the importance of elasticity in assessing the impact and also considers alternatives to subsidies by the government.

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