2.8 — The Effects of Government Intervention in Markets

Import Quotas

A quota is a limit on the number of imports. The government sets the maximum amount that can come into the country. Protect domestic producers from a cheaper world price, and also prevent domestic unemployment

Subsidies

The government gives producers money. The goal is to make more goods that the government deems important. Ex: agriculture (prevent famine), pharmacy, EVs, FAFSA, etc

Excise Taxes

Excise taxes are the per-unit tax on producers. For every unit made, the producer must pay $ NOT a lumpsum tax (one-time tax). They aim to make less of the goods that the government deems dangerous or unwanted. Ex: “Alcohol sin tax”, “Cigarette sin tax”, tariff on imported goods, environmentally unsafe products

Government interventions are further elaborated in AP Macroeconomics, especially through 3.8 — Fiscal Policy and 3.9 — Automatic Stabilizers.