Specific tax
Fixed monetary amount per unit.
Government intervention in markets
Key definitions
Ad valorem tax
Percentage of price per unit.
Subsidy
Financial gift to firms not repaid.
Maximum price
Legal price ceiling below equilibrium.
Minimum price
Legal price floor above equilibrium.
Trade pollution permits
Tradable rights to pollute to a set level.
State provision
Government supplies goods such as public goods.
Provision of information
Helps consumers make informed choices.
Regulation
Laws firms and consumers must follow.
Externality
Third-party effect justifying intervention.
Key concepts
Intervention should address specific market failure with appropriate tool.
Maximum prices cause shortages; minimum prices cause surpluses.
Evaluate effectiveness vs government failure.
Relevant tips
- Match intervention tool to market failure type in essays.