AP Microeconomics Flashcards: Effects Of Government Intervention In Markets

What this deck covers

This deck focuses on Effects Of Government Intervention In Markets, giving you a quick way to review the definitions, rules, and examples that matter most for AP Microeconomics.

How to use these flashcards

Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.

Flashcard 1: Identify one effect of a subsidy on market equilibrium.

Answer: It lowers the price and increases the quantity sold. Subsidy shifts supply right, creating new equilibrium.

Flashcard 2: Identify one effect of a price floor on market equilibrium.

Answer: It can create a surplus if set above equilibrium price. Quantity supplied exceeds quantity demanded at floor price.

Flashcard 3: How does a subsidy affect producer surplus?

Answer: It typically increases producer surplus. Subsidies increase producer revenue and profit.

Flashcard 4: What is a tax on goods?

Answer: A financial charge imposed by the government on a product. Increases production costs for suppliers.

Flashcard 5: Analyze the effect of a subsidy on a perfectly inelastic supply.

Answer: Results in a price decrease; no quantity change. Subsidy benefit goes entirely to consumers via price.

Flashcard 6: How is tax incidence determined?

Answer: By the relative elasticities of supply and demand. Less elastic side bears greater tax burden.

Flashcard 7: Find the tax incidence given elasticity values: demand (0.5), supply (1.0).

Answer: Greater burden falls on consumers with less elastic demand. Less elastic side bears proportionally greater burden.

Flashcard 8: What happens to equilibrium quantity when a subsidy is introduced?

Answer: Equilibrium quantity typically increases. Lower costs increase production at all price levels.

Flashcard 9: What causes deadweight loss in a market?

Answer: Price controls, taxes, and subsidies can cause deadweight loss. Government interventions prevent efficient market outcomes.

Flashcard 10: What is the incidence of a tax?

Answer: The division of the tax burden between buyers and sellers. Depends on price elasticities of buyers and sellers.

Flashcard 11: How does a tax affect consumer surplus?

Answer: It typically decreases consumer surplus. Higher prices reduce consumer benefit.

Flashcard 12: What is a subsidy?

Answer: A payment from the government to producers to encourage production. Reduces producer costs, making production more profitable.

Flashcard 13: How does a price floor above equilibrium affect producer surplus?

Answer: It typically increases producer surplus. Higher guaranteed price benefits producers despite surplus.

Flashcard 14: Analyze the effect of a subsidy on a perfectly inelastic supply.

Answer: Results in a price decrease; no quantity change. Subsidy benefit goes entirely to consumers via price.

Flashcard 15: Identify one effect of a price floor on market equilibrium.

Answer: It can create a surplus if set above equilibrium price. Quantity supplied exceeds quantity demanded at floor price.

Flashcard 16: What role do subsidies play in correcting positive externalities?

Answer: They increase the production or consumption of a beneficial good. Aligns private and social benefits through price incentives.

Flashcard 17: What effect does a subsidy have on supply?

Answer: It typically increases supply. Subsidy reduces production costs, shifting supply rightward.

Flashcard 18: Identify one effect of a tax on market equilibrium.

Answer: It raises the price and reduces the quantity sold. Tax shifts supply left, creating new equilibrium.

Flashcard 19: Find the effect of a price ceiling on a good with inelastic demand.

Answer: Smaller shortage compared to elastic demand. Limited demand response reduces shortage severity.

Flashcard 20: What is the incidence of a tax?

Answer: The division of the tax burden between buyers and sellers. Depends on price elasticities of buyers and sellers.

Flashcard 21: What role do taxes play in correcting negative externalities?

Answer: They internalize the external cost, reducing the quantity produced. Pigouvian taxes align private and social costs.

Flashcard 22: What is a price ceiling?

Answer: A maximum price set by the government below equilibrium. Prevents market price from rising to equilibrium level.

Flashcard 23: What is a subsidy?

Answer: A payment from the government to producers to encourage production. Reduces producer costs, making production more profitable.

Flashcard 24: What is a price floor?

Answer: A minimum price set by the government above equilibrium. Prevents market price from falling to equilibrium level.

Flashcard 25: Determine the effect on consumer surplus with a subsidy on production.

Answer: Consumer surplus typically increases. Lower prices from increased supply benefit consumers.

Flashcard 26: What role do subsidies play in correcting positive externalities?

Answer: They increase the production or consumption of a beneficial good. Aligns private and social benefits through price incentives.

Flashcard 27: What role do taxes play in correcting negative externalities?

Answer: They internalize the external cost, reducing the quantity produced. Pigouvian taxes align private and social costs.

Flashcard 28: What is deadweight loss?

Answer: The loss of economic efficiency when equilibrium is not achieved. Represents welfare loss from market distortions.

Flashcard 29: Identify one effect of a subsidy on market equilibrium.

Answer: It lowers the price and increases the quantity sold. Subsidy shifts supply right, creating new equilibrium.

Flashcard 30: Identify one effect of a tax on market equilibrium.

Answer: It raises the price and reduces the quantity sold. Tax shifts supply left, creating new equilibrium.

Flashcard 31: How does a tax affect consumer surplus?

Answer: It typically decreases consumer surplus. Higher prices reduce consumer benefit.

Flashcard 32: What is the result of government setting a price lower than equilibrium?

Answer: A shortage occurs. Price below equilibrium creates excess demand.

Flashcard 33: Find the effect of a price ceiling on a good with inelastic demand.

Answer: Smaller shortage compared to elastic demand. Limited demand response reduces shortage severity.

Flashcard 34: Identify one effect of a price ceiling on market equilibrium.

Answer: It can create a shortage if set below equilibrium price. Quantity demanded exceeds quantity supplied at ceiling price.

Flashcard 35: How is tax incidence determined?

Answer: By the relative elasticities of supply and demand. Less elastic side bears greater tax burden.

Flashcard 36: What is the result of government setting a price lower than equilibrium?

Answer: A shortage occurs. Price below equilibrium creates excess demand.

Flashcard 37: What is the effect of removing a tax on a market?

Answer: Increases equilibrium quantity and decreases price. Returns market to original equilibrium point.

Flashcard 38: Determine the effect on consumer surplus with a subsidy on production.

Answer: Consumer surplus typically increases. Lower prices from increased supply benefit consumers.

Flashcard 39: What is producer surplus?

Answer: The difference between what producers receive and the minimum they would accept. Measures producer benefit from market participation.

Flashcard 40: How does a price floor above equilibrium affect producer surplus?

Answer: It typically increases producer surplus. Higher guaranteed price benefits producers despite surplus.

Flashcard 41: What is the purpose of a subsidy in a market?

Answer: To encourage production or consumption of a good. Government seeks to correct market failures or support industries.

Flashcard 42: What is the purpose of a subsidy in a market?

Answer: To encourage production or consumption of a good. Government seeks to correct market failures or support industries.

Flashcard 43: Identify the outcome if a tax is imposed on a good with elastic supply.

Answer: Greater tax burden on consumers; price increases. Elastic supply shifts burden toward consumers.

Flashcard 44: How does a subsidy affect producer surplus?

Answer: It typically increases producer surplus. Subsidies increase producer revenue and profit.

Flashcard 45: Predict the market effect of a tax on inelastic demand goods.

Answer: Greater tax burden on consumers; smaller quantity change. Consumers absorb most tax with limited demand response.

Flashcard 46: How does a tax on producers affect market supply?

Answer: Supply curve shifts leftward. Tax adds to production costs, reducing supply.

Flashcard 47: What is the effect of removing a tax on a market?

Answer: Increases equilibrium quantity and decreases price. Returns market to original equilibrium point.

Flashcard 48: What effect does a tax have on supply?

Answer: It typically decreases supply. Tax increases production costs, shifting supply leftward.

Flashcard 49: What is an externality?

Answer: A cost or benefit incurred by a third party not involved in the transaction. Spillover effects not reflected in market prices.

Flashcard 50: How does a tax on producers affect market supply?

Answer: Supply curve shifts leftward. Tax adds to production costs, reducing supply.

Flashcard 51: What is a tax on goods?

Answer: A financial charge imposed by the government on a product. Increases production costs for suppliers.

Flashcard 52: Identify the outcome if a tax is imposed on a good with elastic supply.

Answer: Greater tax burden on consumers; price increases. Elastic supply shifts burden toward consumers.

Flashcard 53: What causes deadweight loss in a market?

Answer: Price controls, taxes, and subsidies can cause deadweight loss. Government interventions prevent efficient market outcomes.

Flashcard 54: What happens to equilibrium quantity when a subsidy is introduced?

Answer: Equilibrium quantity typically increases. Lower costs increase production at all price levels.

Flashcard 55: Identify one effect of a price ceiling on market equilibrium.

Answer: It can create a shortage if set below equilibrium price. Quantity demanded exceeds quantity supplied at ceiling price.

Flashcard 56: Predict the market effect of a tax on inelastic demand goods.

Answer: Greater tax burden on consumers; smaller quantity change. Consumers absorb most tax with limited demand response.

Flashcard 57: What is consumer surplus?

Answer: The difference between what consumers are willing to pay and what they actually pay. Measures consumer benefit from market participation.

Flashcard 58: Find the tax incidence given elasticity values: demand (0.5), supply (1.0).

Answer: Greater burden falls on consumers with less elastic demand. Less elastic side bears proportionally greater burden.