as micro government intervention
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TRANSCRIPT
AS MicroGovernment
Intervention in Markets
Buffer Stocks – Do They Work?
How might a buffer stock help to stabilise prices in the cocoa market?
Price of Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1Q1
Excess supply at this price
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1
Demand with purchases
Q1
A rise in market supplyPrice of
Cocoa
Quantity
Market Demand
Planned Supply
Upper Target
Upper Target Price
Lower Target
Lower Target Price
Actual Supply
S1
Demand with purchases
Q1
Cost of buying up
stocks
The case for price stabilisation
Limitations of buffer stock schemes
Welfare Effects of a Tax and a Subsidy
Costs and Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
Welfare Effects of a Tax and a Subsidy
Costs and Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer pays B
Supplier receives C
Welfare Effects of a Tax and a Subsidy
Costs and Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer pays B
Supplier receives C
Tax revenue
Welfare Effects of a Tax and a Subsidy
Costs and Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer pays B
Supplier receives C
Tax revenue
Welfare Effects of a Tax and a Subsidy
Costs and Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer pays B
Supplier receives C
Tax revenue
Consumer burden
Welfare Effects of a Tax and a Subsidy
Costs and Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer pays B
Supplier receives C
Tax revenue
Consumer burden
Welfare Effects of a Tax and a Subsidy
Costs and Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer pays B
Supplier receives C
Tax revenue
Consumer burden
Producer burden
Quick Test!An indirect tax on the production of a good will have no effect on price if the price elasticity of demand is? _________
If elasticity of demand for a product is (-) 0.4 then the majority of the burden of a tax on the producer will be paid by the _________________
In the event of a new tax on a product, the price will rise by the full amount of the tax when the price elasticity of demand is ___________
Quick Test!An indirect tax on the production of a good will have no effect on price if the price elasticity of demand is? _________
Quick Test!An indirect tax on the production of a good will have no effect on price if the price elasticity of demand is? Infinity
Quick Test!An indirect tax on the production of a good will have no effect on price if the price elasticity of demand is? Infinity
If elasticity of demand for a product is (-) 0.4 then the majority of the burden of a tax on the producer will be paid by the
Quick Test!An indirect tax on the production of a good will have no effect on price if the price elasticity of demand is? Infinity
If elasticity of demand for a product is (-) 0.4 then the majority of the burden of a tax on the producer will be paid by the Consumer
Quick Test!An indirect tax on the production of a good will have no effect on price if the price elasticity of demand is? Infinity
If elasticity of demand for a product is (-) 0.4 then the majority of the burden of a tax on the producer will be paid by the Consumer
In the event of a new tax on a product, the price will rise by the full amount of the tax when the price elasticity of demand is ___________
Quick Test!An indirect tax on the production of a good will have no effect on price if the price elasticity of demand is? Infinity
If elasticity of demand for a product is (-) 0.4 then the majority of the burden of a tax on the producer will be paid by the Consumer
In the event of a new tax on a product, the price will rise by the full amount of the tax when the price elasticity of demand is ZERO
Welfare effects of a subsidy
Costs and Benefits
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
Welfare effects of a subsidy
Costs and Benefits
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
C
D
Welfare effects of a subsidy
Costs and Benefits
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
C
D
ESupplier receives C
Consumer pays B
Welfare effects of a subsidy
Costs and Benefits
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
C
D
ESupplier receives C
Consumer pays B
Subsidy payment
A subsidy when demand is price elasticPrice
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
A subsidy when demand is price elasticPrice
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
C
D
A subsidy when demand is price elasticPrice
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
C
D
E
A subsidy when demand is price elasticPrice
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
C
D
E
A subsidy when demand is price elasticPrice
Output
Demand
Supply post subsidyA
B
Supply pre subsidy
C
D
E
Elastic demand – so a subsidy causes a large rise in quantity demanded