AP Microeconomics AMSCO Guided Notes
2.8: The Effects of Government Intervention in Markets
AMSCO Guided Notes
AP Microeconomics Guided Notes
AMSCO 2.8 - The Effects of Government Intervention in Markets
Essential Questions
- How and why do government policies influence consumer and producer behavior and therefore affect market outcomes?
I. Price and Quantity Regulations
A. Price Floors
1. What is a price floor and how does it affect producer incentives?
2. What are the benefits and costs of minimum wage laws?
3. How do binding and nonbinding price floors differ in their effects on markets?
B. Price Ceilings
1. What is a price ceiling and under what circumstances do governments typically implement them?
2. How do price ceilings affect producer incentives and what problems can result?
3. What is the difference between binding and nonbinding price ceilings?
C. Other Forms of Price and Quantity Regulations
1. What is non-price rationing and how did the government use it during World War II?
II. Taxes and Subsidies
A. Taxes
1. What are taxes and what are three common types that governments collect?
2. How can reducing taxes on businesses and workers affect economic activity?
3. How do governments use taxes to influence behavior and address externalities?
B. Subsidies
1. What is a subsidy and what is the stated goal of government subsidies?
2. What are three forms that subsidies can take and provide examples of each?
3. How does price elasticity of demand affect the impact of subsidies on quantity demanded?
III. Allocative Efficiencies
1. What is allocative efficiency and how can government intervention decrease it?
2. How did the Interstate Highway System illustrate the tradeoff between allocative efficiency and other government goals?
IV. Deadweight Loss
1. What is deadweight loss and how can government intervention cause it?
2. How does a sales tax on airline tickets illustrate the concept of deadweight loss?
V. Determining Who Taxes and Subsidies Affect
1. What is tax incidence and why is determining it complicated?
2. How do elasticity of supply and elasticity of demand determine whether a business can pass a tax to consumers?
3. How is the incidence of subsidies determined and what debate does this raise about student financial aid?
Key Terms
price floor
minimum wage
price ceiling
taxes
user fees
externalities
subsidies
allocative efficiencies
deadweight loss
incidence of tax