3. Government microeconomy intervention

Government can finance provision through taxation, direct production or contracts, but must estimate demand, cost and the socially valuable quantity. Provision still has an opportunity cost.

A publicly funded flood-warning system can protect many households simultaneously; charging each household separately may fail because people can wait for others to contribute.

Choose policy by mechanism. Information shifts informed demand; a subsidy shifts supply right and lowers price; an indirect tax shifts supply left/up and raises price; direct provision changes availability. Combining policies can address both knowledge and affordability, but effects depend on PED/PES and enforcement.

Risk information plus subsidised vaccination can increase informed uptake. Health warnings plus a sugar tax can reduce high-sugar drink consumption, although a small quantity response is likely when demand is price inelastic or close substitutes remain untaxed.

The effect depends on whether the control is binding. A non-binding ceiling above equilibrium or floor below it leaves the market outcome unchanged; enforcement and allocation mechanisms determine who gains access.

A binding rent ceiling may reduce the price paid by some tenants but create a shortage and non-price allocation; an agricultural support price can create unsold surplus.

Start at the original equilibrium price $P_e$ and quantity $Q_e$. Shift supply up by the per-unit tax, locate the new lower quantity $Q_t$, then read $P_c$ on demand and $P_p$ on the original supply curve at $Q_t$. The wedge is $P_c-P_p=tax\ per\ unit$.

From the original equilibrium $(P_e,Q_e)$, shift supply down by the per-unit subsidy and locate the new higher quantity $Q_s$. Consumers pay the lower market price $P_c$; producers receive the higher effective price $P_p=P_c+subsidy\ per\ unit$.

The less elastic side captures more of the benefit. Relatively inelastic demand creates a larger fall in consumer price; relatively inelastic supply creates a larger rise in producers' net receipt. More elastic demand and supply usually create a larger output response and therefore greater total government spending for the same per-unit subsidy.

If public clinics provide vaccinations free at the point of use, the money price falls to zero for eligible users and demand may rise. The service has not become a public good: clinic appointments remain rival and can be rationed by waiting time, location or eligibility.

Judge success by access, quality, quantity and cost over time. Direct provision is stronger when the government can identify need and monitor outcomes; it is weaker when demand is hard to estimate, capacity is fixed or political incentives misallocate resources.

Mark the legal price, read $Q_d$ and $Q_s$ at that same price, calculate the imbalance, then state who actually trades and how remaining demand or supply is allocated. Elastic demand or supply creates a larger quantity response to a given price gap; inelastic curves create a smaller one.

A ceiling can improve affordability only for consumers who obtain the good. A floor can support the income of sellers who still sell, or discourage a demerit good, but may exclude others. Outcomes depend on enforcement, duration, accompanying rationing/purchases and supply response over time.

The scheme works across time: stock bought in plentiful periods must be stored and later released in scarce periods. Government purchase cost at a floor is target price multiplied by the quantity bought; sales replenish funds but need not cover storage, spoilage or administration.

It may involve labels, warnings, public campaigns, testing standards or disclosure rules. Effectiveness depends on credibility, comprehension, attention and whether behaviour is habit-forming.

Nutrition labels can help consumers compare products; clear vaccine information may raise uptake when uncertainty, not price, is the main barrier.

Income can add to wealth through saving, while wealth can generate income through rent, interest or dividends. A person can have high income but low wealth, or low current income but substantial assets.

A graduate earning £40,000 a year has income; a homeowner’s house and pension fund form part of wealth.

It can be derived from the Lorenz curve, but the same coefficient can hide different distribution shapes and does not identify absolute income levels.

Country A can have a lower Gini than Country B but still have lower average incomes; the coefficient compares distribution, not prosperity.

The channels reinforce one another: wealth can finance education or business ownership, generate property income and be inherited; higher income can be saved into assets. Structural unemployment or discrimination can interrupt the same accumulation process.

If automation raises demand for specialist workers and capital while replacing routine jobs, wage and profit gaps may widen. The extent depends on retraining, labour mobility, ownership of capital and tax/benefit responses.

Use a policy package when causes differ: targeted transfers can change current disposable income, education can affect future earning power, and inheritance/capital taxes can address wealth concentration. Compare before-tax market income, after-tax cash income, benefits in kind and wealth separately.

A progressive income tax funding targeted benefits may lower the income Gini immediately. It need not lower wealth inequality unless saving, asset ownership or inheritance is also affected; state education may improve opportunity but only after a longer lag.