Question

The government intervenes in the free market in many different ways. For example, regulators may use price controls, impose taxes on consumers as well as on producers and give subsidies to producers. 1) What would be the intended outcome in the market by each of the above government actions? 2) Give a real-world example of how government intervention in the free market affects the demand for or supply of a product or service you use or a product or service produced at your workplace.

Answer 1

o have to ANSII Government intervenes in market in - many ways like price controls which often dulded into price ceiling (maximum price for a goods or services that can be charged) : and price floor (minimum price for a good or : services that can be charged), other ways are increasing or decreasing taxes on consu- mers as well as producess. So what will be outcome of these cactions in a the market - 1. Price Ceiling & It is price control mechanism, a accordóng' to which government decided a maximum price for any good of service that a can be charged above that level forice can not be be exceeded by seller. Government uses this measure to safeguard Consumers, for things which are important and their scarcity will effect consumers. like price ceiling on medical devices. - do Price flooring te minimum price betwo below to which a commodity can not be sold. It is mainly to protect Producers Exo like frice flooring on food grains in case of excessive supply in market. OLLER

cuss oney hence to spend same as white government incea taxes on consumers and producers consumu will not have excess money and produces won't generate more a in case of low taxes consumers will spene more and produces will produce mot What will be outtcomes. Above mentioned due to all these measures of government, suppy and demand for gools and services an . market effected so that Equillibrium price a like entioned A A ANS&: Examples are many like in Oreler - © make available medical devices to patie a government rices, often put price celling on their pree a so that every needy person can afford it, but 7 many a times it backfirs like- a 1) due to such measure their supply 2 market decreases u as sellers won't have incentive / suffice- 3 ent hrofit. 3 2 black marketing starts many more. > On imposing taxes on consumers and producers 7 government try to mantpulate demande 7 and supply but it often does not get success, Example & ducrease a tax on consumer affects ther purchasing power and ultimately decrea- ses quantity demanded le reduce producer Surplus hence & affect growth of economy. Increase in taxes on Producers like one is GAFA tax crimposed by france on US companies) will make and at for consumess also the same things costiliers tine decrease production also hence affect it (france's) growth also.