2281 · 2.11
Mixed economic system — FAQ
Frequently asked questions for 2281 Mixed economic system. Direct answers first, then deeper explanation — then practise with marking.
Does a maximum price always cause a shortage?
Only if it is set below the equilibrium price. A ceiling set above equilibrium has no effect because the market price is already lower than the limit.
Who really pays an indirect tax?
Both consumers and producers. The seller pays the government, but passes part of it on through a higher price. The more inelastic demand is, the larger the share consumers pay.
Why would a government subsidise an industry that makes losses?
Because the industry may provide a merit good or positive externalities — rural bus services, for example — whose social benefit exceeds its private revenue. The subsidy keeps the service running, at the opportunity cost of the tax revenue used.