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Government microeconomic intervention

Topics covered in this Unit

All candidates study these AS Level topics 

  • Maximum and minimum prices
  • Taxes (direct and indirect)
  • Subsidies
  • Transfer payments
  • Direct provision of goods and services
  • Nationalisation and privatisation

A Level candidates also study these additional topics

a) Policies to achieve efficient resource allocation and correct market failure

  • application of indirect taxes and subsidies
  • price and output decisions under nationalisation and privatisation
  • prohibitions and licences
  • property rights
  • information
  • regulatory bodies, deregulation and direct provision of goods and services
  • pollution permits
  • behavioural insights and ‘nudge’ theory

b) Equity and policies towards income and wealth redistribution

  • equity versus efficiency
  • price stabilisation
  • means tested benefits
  • transfer payments
  • progressive income taxes, inheritance and capital taxes
  • negative income tax
  • poverty trap analysis
  • Gini coefficient and the Lorenz curve
  • inter-generational equity

c) Labour market forces and government intervention:

(i) demand for and supply of labour

(ii) wage determination in perfect markets

(iii) wage determination in imperfect markets

  • factors affecting demand for labour
  • derivation of individual firm’s demand for using marginal revenue product theory
  • factors affecting supply for labour
  • net advantages and the long-run supply of labour
  • competitive product and factor market forces determining wage differentials, transfer earnings and economic rent
  • influence of trades unions on wage determination
  • influence of government on wage determination
  • monopsony

d) Government failure in microeconomic intervention

  • effectiveness of government policies
Revision Notes Article Count:  25
Interactive Quizzes Article Count:  0



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