1.4 Government intervention
1.4.1 Government intervention in markets (7)
1) Indirect taxation (ad valorem and specific)
2) Subsidies
3) Regulation
4) Trade pollution permits
5) State provision of public goods
6) Provision of information
7) Maximum prices
8) Minimum prices
, 1. Indirect taxes
Def: Tax levied on expenditure that act as an increase in cost of production
2 types:
Specific: fixed amount per unit
Ad valorem: % on price
Regressive increasing gini coefficient
Basic diagram: ***Welfare loss, the amount by which costs exceed benefit
EVA: Depends on how much CB. If inelastic, then consumer pay more
Why tax?
1. Increase government rev.
2. Decrease market failure of –ve externality
1.4.1 Government intervention in markets (7)
1) Indirect taxation (ad valorem and specific)
2) Subsidies
3) Regulation
4) Trade pollution permits
5) State provision of public goods
6) Provision of information
7) Maximum prices
8) Minimum prices
, 1. Indirect taxes
Def: Tax levied on expenditure that act as an increase in cost of production
2 types:
Specific: fixed amount per unit
Ad valorem: % on price
Regressive increasing gini coefficient
Basic diagram: ***Welfare loss, the amount by which costs exceed benefit
EVA: Depends on how much CB. If inelastic, then consumer pay more
Why tax?
1. Increase government rev.
2. Decrease market failure of –ve externality
