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Economic effects of government F.4A economic project policies Contents A price ceiling is the maximum price a seller can charge for a good. For example: bus fares, taxi fares, tram fares, ferry charges etc. Why does the government have to set up the price control, what do you think? Helping the poor / those who cannot afford to pay the market price. Price of Ice-Cream Cone Supply Equilibrium price $3 Price ceiling 2 Shortage Demand 0 75 Quantity supplied 125 Quantity demanded Quantity of Ice-Cream Cones A price floor is the minimum price the buyer is required to pay for a good. For example: the minimum wage law in H.K. for employment of Philippine maids. Why does the government have to set up the price control, what do you think? To protect the interest of some groups / sectors in society. Price of Ice-Cream Cone Surplus $4 Supply Price floor $3 Equilibrium price Demand 0 80 Quantity demanded 120 Quantity supplied Quantity of Ice-Cream Cones A quota is a limit on the maximum quantity that can be offered for sale. For example: issue of taxi licenses, U.S. imposition of an import quota on garment exports. Why does the government have to set up the price control, what do you think? To protect their local industries / for political reasons. P S2 S1 P1 P Demand 0 Q1 Q Q The government imposes a tax on certain goods and services. These taxes are known as sales taxes. For example: import-tax on motor vehicles (F.R.T.), tax on cigarette (tobacco duty), alcohol (alcohol duty), airport tax, betting duty gasoline tax (fuel duty), etc. There are TWO ways of imposing a sales tax: 1. The per-unit sales tax e.g. tax on cigarette, alcohol, airport tax, gasoline tax. 2. The ad valorem sales tax e.g. motor vehicles(F.R.T), hotel accommodation tax. Why does the government have to impose a sales tax? To increase the government revenue / to discourage of some goods . Price of Ice-Cream Cone Price buyers pay Price without tax S2 $3.30 3.00 2.80 S1 Tax ($0.50) A tax on sellers shifts the supply curve upward by the amount of the tax ($0.50). Price sellers receive Demand 0 90 100 Quantity of Ice-Cream Cones Sometimes, the government will provide a subsidy for producers and consumers either in a per-unit basis or an advalorem basis. For example: subsidy on education, transport subsidies for full-time students, subsidies for hospital services, public housing. Why does the government have to provide a subsidy? To help these in need / to encourage the consumption of some goods and services / to support the provision of some services e.g. utility. Price of Ice-Cream Cone Price sellers receive Price without sub. S1 $3.30 3.00 2.80 S2 sub.($0.50) A sub. on sellers shifts the supply curve downward by the amount of the sub.($0.50). Price buyers pay Demand 0 90 100 Quantity of Ice-Cream Cones Groups Members (4A) Emily Chan (2) Ellen Wong (32) Carmen Wong (35) Tracy Yu (40) ~END~