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1.3 – Government Intervention
1.3 – Government Intervention
Enduring Understandings:
Enduring Understandings:
Sometimes Free Markets may result in undesirable outcomes.
Governments may have reasons for imposing taxes, subsidies and P controls, but because they all disrupt normal market forces, they advantage and disadvantage the various market players differently.
Governments may have reasons for imposing taxes, subsidies and P controls, but because they all disrupt normal market forces, they advantage and disadvantage the various market players differently.
Essential Questions:
Essential Questions:
1. Why do governments impose taxes and what are the consequences?
1. Why do governments impose taxes and what are the consequences?
2. Why do governments impose subsidies and what are the consequences?
2. Why do governments impose subsidies and what are the consequences?
3. Why do governments impose P controls and what are the consequences?
3. Why do governments impose P controls and what are the consequences?
IB Syllabus goals:
IB Syllabus goals:
1. Indirect Taxes: Specific (fixed amount) taxes and ad valorem (percentage) taxes and their impact on markets
1. Indirect Taxes: Specific (fixed amount) taxes and ad valorem (percentage) taxes and their impact on markets
• Explain why governments impose indirect (excise) taxes.
• Explain why governments impose indirect (excise) taxes.
• Distinguish between specific and ad valorem taxes.
• Distinguish between specific and ad valorem taxes.
• Draw diagrams to show specific and ad valorem taxes, and analyse their impacts on market outcomes.
• Draw diagrams to show specific and ad valorem taxes, and analyse their impacts on market outcomes.
• Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.
• Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.
HL Requirements:
HL Requirements:
- Explain, using diagrams, how the incidence of indirect taxes on consumers and firms differs, depending on the price elasticity of demand on the price elasticity of supply.
- Explain, using diagrams, how the incidence of indirect taxes on consumers and firms differs, depending on the price elasticity of demand on the price elasticity of supply.
- Illustrate and/or calculate the effects of the imposition of a specific tax on the market (on price, quantity, consumer expenditure, producer revenue, government revenue, consumer surplus and producer surplus).
- Illustrate and/or calculate the effects of the imposition of a specific tax on the market (on price, quantity, consumer expenditure, producer revenue, government revenue, consumer surplus and producer surplus).
2. Subsidies: Impact on markets
2. Subsidies: Impact on markets
• Explain why governments provide subsidies, and describe examples of subsidies.
• Explain why governments provide subsidies, and describe examples of subsidies.
• Draw a diagram to show a subsidy, and analyse the impacts of a subsidy on market outcomes.
• Draw a diagram to show a subsidy, and analyse the impacts of a subsidy on market outcomes.
• Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.
• Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.
HL Requirements:
HL Requirements:
- Illustrate and/or calculate the effects of the provision of a subsidy on the market (on price, quantity, consumer expenditure, producer revenue, government expenditure, consumer surplus and producer surplus).
- Illustrate and/or calculate the effects of the provision of a subsidy on the market (on price, quantity, consumer expenditure, producer revenue, government expenditure, consumer surplus and producer surplus).
3. Price Controls: Price ceilings (maximum prices): rationale, consequences and examples
3. Price Controls: Price ceilings (maximum prices): rationale, consequences and examples
• Explain why governments impose price ceilings, and describe examples of price ceilings, including food price controls and rent controls.
• Explain why governments impose price ceilings, and describe examples of price ceilings, including food price controls and rent controls.
• Draw a diagram to show a price ceiling, and analyse the impacts of a price ceiling on market outcomes.
• Draw a diagram to show a price ceiling, and analyse the impacts of a price ceiling on market outcomes.
• Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground parallel markets and non-price rationing mechanisms.
• Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground parallel markets and non-price rationing mechanisms.
• Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.
• Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.
HL Requirements:
HL Requirements:
- Calculate possible effects from the price ceiling diagram, including the resulting shortage and the change in consumer expenditure (which is equal to the change in firm revenue).
- Calculate possible effects from the price ceiling diagram, including the resulting shortage and the change in consumer expenditure (which is equal to the change in firm revenue).
4. Price floors (minimum prices): rationale, consequences and examples
4. Price floors (minimum prices): rationale, consequences and examples
• Explain why governments impose price floors, and describe examples of price floors, including price support for agricultural products and minimum wages.
• Explain why governments impose price floors, and describe examples of price floors, including price support for agricultural products and minimum wages.
• Draw a diagram of a price floor, and analyse the impacts of a price floor on market outcomes.
• Draw a diagram of a price floor, and analyse the impacts of a price floor on market outcomes.
• Examine the possible consequences of a price floor, including surpluses and government measures to dispose of the surpluses, inefficient resource allocation and welfare impacts.
• Examine the possible consequences of a price floor, including surpluses and government measures to dispose of the surpluses, inefficient resource allocation and welfare impacts.
• Discuss the consequences of imposing a price floor on the stakeholders in a market, including consumers, producers and the government.
• Discuss the consequences of imposing a price floor on the stakeholders in a market, including consumers, producers and the government.
HL Requirements:
HL Requirements:
- Calculate the possible effects from the price floor diagram, including the resulting surplus, the change in consumer expenditure, the change in producer revenue, and government expenditure to purchase the surplus.
- Calculate the possible effects from the price floor diagram, including the resulting surplus, the change in consumer expenditure, the change in producer revenue, and government expenditure to purchase the surplus.
Part 1: Intro to Government Intervention: Taxes and Subsidies
Part 1: Intro to Government Intervention: Taxes and Subsidies
Questions for the day:
Questions for the day:
• Explain why governments impose indirect (excise) taxes.
• Explain why governments impose indirect (excise) taxes.
• Distinguish between specific and ad valorem taxes.
• Distinguish between specific and ad valorem taxes.
• Draw diagrams to show specific and ad valorem taxes, and analyse their impacts on market outcomes.
• Draw diagrams to show specific and ad valorem taxes, and analyse their impacts on market outcomes.
• Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.
• Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.
HL Requirements:
HL Requirements:
- Explain, using diagrams, how the incidence of indirect taxes on consumers and firms differs, depending on the price elasticity of demand on the price elasticity of supply.
- Explain, using diagrams, how the incidence of indirect taxes on consumers and firms differs, depending on the price elasticity of demand on the price elasticity of supply.
- Draw demand and supply curves for a product and then illustrate and/or calculate the effects of the imposition of a specific tax on the market (on price, quantity, consumer expenditure, producer revenue, government revenue, consumer surplus and producer surplus).
- Draw demand and supply curves for a product and then illustrate and/or calculate the effects of the imposition of a specific tax on the market (on price, quantity, consumer expenditure, producer revenue, government revenue, consumer surplus and producer surplus).
Exit Slip: • Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.
Exit Slip: • Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.
Optional Extra Review:
Optional Extra Review:
Effect of an Excise tax on a product with inelastic demand: Cigarettes (Welker)
Effect of an Excise tax on a product with inelastic demand: Cigarettes (Welker)
Part 2: Subsidies
Part 2: Subsidies
Today's topic: Subsidies
Today's topic: Subsidies
Questions for the day:
Questions for the day:
1. Explain why governments provide subsidies, and describe examples of subsidies.
1. Explain why governments provide subsidies, and describe examples of subsidies.
2. Draw a diagram to show a subsidy, and analyse the impacts of a subsidy on market outcomes.
2. Draw a diagram to show a subsidy, and analyse the impacts of a subsidy on market outcomes.
3. Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.
3. Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.
First:
First:
Why did removing subsidies HELP New Zealand?
Why did removing subsidies HELP New Zealand?
Would this work in India?
Would this work in India?
Exit Slip:
Exit Slip:
Questions for the day:
Questions for the day:
1. Explain why governments provide subsidies, and describe examples of subsidies.
1. Explain why governments provide subsidies, and describe examples of subsidies.
2. Draw a diagram to show a subsidy, and analyse the impacts of a subsidy on market outcomes.
2. Draw a diagram to show a subsidy, and analyse the impacts of a subsidy on market outcomes.
3. Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.
3. Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.
Optional Review from Welker's Wikinomics:
Optional Review from Welker's Wikinomics:
Part 3: Review Taxes and Subsidies and start Price Controls
Part 3: Review Taxes and Subsidies and start Price Controls
Another post: Our Crazy Farm Subsidies Explained (government paying farmers NOT to produce is more of a price control than a subsidy)
Another post: Our Crazy Farm Subsidies Explained (government paying farmers NOT to produce is more of a price control than a subsidy)
Questions for the day:
Questions for the day:
1. Explain why governments impose price ceilings, and describe examples of price ceilings, including food price controls and rent controls.
1. Explain why governments impose price ceilings, and describe examples of price ceilings, including food price controls and rent controls.
2. Draw a diagram to show a price ceiling, and analyse the impacts of a price ceiling on market outcomes.
2. Draw a diagram to show a price ceiling, and analyse the impacts of a price ceiling on market outcomes.
3. Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground parallel markets and non-price rationing mechanisms.
3. Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground parallel markets and non-price rationing mechanisms.
4. Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.
4. Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.
Basic Math Practice
Basic Math Practice
Students to complete “1.3D – Understanding Price Ceilings and Floors” (print)
Students to complete “1.3D – Understanding Price Ceilings and Floors” (print)
Part 2 – Graphing P Controls Students to complete “1.3D – Graphing P Controls” (print)
Part 2 – Graphing P Controls Students to complete “1.3D – Graphing P Controls” (print)
Part 3 – Econ in the News
Part 3 – Econ in the News
Part 4 – Minimum Wage as a Price Floor
Part 4 – Minimum Wage as a Price Floor
1. Explain why governments impose price ceilings, and describe examples of price ceilings, including food price controls and rent controls.
1. Explain why governments impose price ceilings, and describe examples of price ceilings, including food price controls and rent controls.
2. Draw a diagram to show a price ceiling, and analyse the impacts of a price ceiling on market outcomes.
2. Draw a diagram to show a price ceiling, and analyse the impacts of a price ceiling on market outcomes.
3. Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground
3. Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground
parallel markets and non-price rationing mechanisms.
parallel markets and non-price rationing mechanisms.
4. Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.
4. Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.
Part 2: Video: Problems with minimum wage: (need to add)
Part 2: Video: Problems with minimum wage: (need to add)
How long does it take to buy basic goods in Venzuela (Venezuela has price controls on most necessities)
How long does it take to buy basic goods in Venzuela (Venezuela has price controls on most necessities)
Additional review videos on Price Floors, Price Ceilings and WHY governments impose them:
Additional review videos on Price Floors, Price Ceilings and WHY governments impose them:
Part 4: Review Price Controls and go through review of unit on government intervention
Part 4: Review Price Controls and go through review of unit on government intervention
Commanding Heights Battle of Ideas 49:00-54:00 Berlin 1947
Commanding Heights Battle of Ideas 49:00-54:00 Berlin 1947
(Free Market solution for Germany's problems after WWII)
(Free Market solution for Germany's problems after WWII)
Review
Review
Another example with explanation and diagram:
Another example with explanation and diagram:
Quiz on price controls
Quiz on price controls
Practice Paper 1/3
Practice Paper 1/3
Practice IB Exam Questions to prep for the Exam:
Practice IB Exam Questions to prep for the Exam:
1. a. Explain the possible effect on consumers and producers when a specific tax is imposed on cigarettes. (10 marks)
1. a. Explain the possible effect on consumers and producers when a specific tax is imposed on cigarettes. (10 marks)
b. Evaluate the possible outcomes of imposing such a tax (15 marks)
b. Evaluate the possible outcomes of imposing such a tax (15 marks)
2. a Explain why a government might grant a subsidy to the producers of wheat.
2. a Explain why a government might grant a subsidy to the producers of wheat.
b. Discuss the consequences of such a subsidy.
b. Discuss the consequences of such a subsidy.
Day 7: Exam!
Day 7: Exam!
TOK Connections from IB Syllabus:
TOK Connections from IB Syllabus:
1. In what sense are we morally obliged to pay taxes? Is this the result of a promise that we have made ourselves? When was this promise made? (Make a distinction here between moral and legal obligations.)
1. In what sense are we morally obliged to pay taxes? Is this the result of a promise that we have made ourselves? When was this promise made? (Make a distinction here between moral and legal obligations.)
2. To what extent is government morally obliged to provide healthcare and welfare benefits to the unemployed?
2. To what extent is government morally obliged to provide healthcare and welfare benefits to the unemployed?
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