Week 7 - Government Intervention: Taxes, Subsidies, and Price Controls
Taxes: Definition: Taxes are compulsory financial charges or levies imposed by a government on individuals and businesses to fund government spending and various public expenditures. Impact on Markets: Taxes can decrease the supply of goods (as it becomes more costly to produce) or decrease demand (as consumers have less disposable income). For example, a higher income tax can reduce disposable income, impacting consumer spending. Types: There are various types of taxes including income tax, corporate tax, sales tax, property tax, etc. Subsidies: Definition: Subsidies are financial contributions provided by governments to individuals, businesses, or industries to encourage certain activities or lower the price of essential goods. Impact on Markets: Subsidies can increase supply (by making production more profitable) or stimulate demand (by making products more affordable to consumers). For example, a subsidy on renewable energy can increase its production and adoption. Types...