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Understanding Government Intervention in Markets Study Guide

This guide explores the economic impacts of government interventions in markets, focusing on excise taxes and their effects on equilibrium, consumer and producer surplus, and overall market efficiency. It also touches upon related concepts like tax incidence and deadweight loss.

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Market Failure, Public Goods, and Government Intervention

Understanding Externalities and Market Failure

An externality is a situation in which the production or consumption of a good or service affects someone else that is not directly involved in the transaction.

  • Negative externality
  • Positive externality
  • Production externality
  • Consumption externality
  • Market failure
  • Marginal social benefit
  • Marginal social cost
  • Marginal private cost
  • Marginal private benefit
  • Deadweight loss
  • Allocative efficiency
  • Overallocation
  • Underallocation

Socially Efficient and Inefficient Market Outcomes

The free market uses the invisible hand to pursue allocative efficiency, but market failure occurs when the system misallocates resources and fails to satisfy society's wants.

  • Invisible hand
  • Allocative efficiency
  • Socially optimal quantity
  • Marginal benefit
  • Marginal cost
  • Deadweight loss
  • Market failure
  • Externalities
  • Public goods

Public Goods and Market Failure

Public goods create market failure because non-exclusion and non-rivalry lead to free riders and insufficient production by private businesses.

  • Public goods
  • Market failure
  • Free riders
  • Non-exclusion
  • Non-rivalry
  • Marginal Social Benefit
  • Marginal Social Cost
  • Socially efficient quantity
  • Marginal analysis

Public and Private Goods Analysis

The distinction between the public sector and private sector regarding public goods, the free-rider problem, and government involvement in the economy.

  • Public Sector
  • Private Sector
  • Public Goods
  • Free-Rider Problem
  • Non-exclusionary
  • Shared Consumption
  • Non-rival
  • Government involvement

Price Controls: Price Ceilings and Price Floors

Price controls are government-imposed limits on how high or low a price can be for a good or service.

  • Price controls
  • Price ceiling
  • Price floor
  • Binding price control
  • Nonbinding price control
  • Equilibrium price
  • Shortage
  • Surplus

Effects of Government Excise Tax Intervention

An analysis of how a per-unit excise tax shifts the supply curve and affects equilibrium price, quantity, and market efficiency.

  • Excise tax
  • Per-unit tax
  • Lump sum tax
  • Supply curve shift
  • Tax burden
  • Consumer surplus
  • Producer surplus
  • Tax revenue
  • Deadweight loss

Market Equilibrium, Externalities, and Government Intervention

External Benefits and External Costs

Externalities occur when external benefits or external costs are on someone other than the original decision maker, causing the free market to fail.

  • externality
  • external benefits
  • external costs
  • market failure
  • production externality
  • consumption externality
  • private costs
  • society's true costs

International Trade and Public Policy

An analysis of domestic price, world price, protectionism, tariffs, and the effects of trade on consumer surplus and producer surplus.

  • Domestic price
  • World price
  • Importing
  • Exporting
  • Protectionism
  • Tariff
  • Consumer surplus
  • Producer surplus
  • Tariff revenue
  • Trade restrictions

Market Disequilibrium and Supply Demand Analysis

Determine equilibrium price and equilibrium quantity using supply and demand schedules to analyze surplus, shortage, and shifting supply and demand.

  • equilibrium price
  • equilibrium quantity
  • demand schedule
  • supply schedule
  • surplus
  • shortage
  • disequilibrium
  • market forces
  • shifting supply and demand

Market Disequilibrium and Changes in Equilibrium

Analysis of how supply and demand shifts affect price and quantity in market equilibrium.

  • Market Disequilibrium
  • Changes in Equilibrium
  • Supply and Demand Shifts
  • Double Shift Rule
  • Price and Quantity Indeterminacy
  • Substitute Goods
  • Production Technology
  • Shortage

Effects of Government Intervention in Markets

This topic examines how tax incidence, excise tax, and subsidies affect consumer surplus, producer surplus, and deadweight loss based on the relative price elasticity of demand and supply.

  • Tax incidence
  • Excise tax
  • Deadweight loss
  • Consumer surplus
  • Producer surplus
  • Tax revenue
  • Price elasticity of demand
  • Price elasticity of supply
  • Subsidies
  • Per-unit production subsidy

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