2.7.5 (HL)—Intervention calculations

Intervention diagrams and calculations quantify changes in price, quantity, revenue, surplus, tax receipts or welfare loss.

Correct areas and incidence require labelled axes, intercepts and the policy wedge or constraint.

Draw the policy, calculate the relevant rectangle or triangle and interpret the distribution.

A $2 tax on 1,000 units raises$2,000 gross revenue before administration costs.

A geometric result is not a complete welfare evaluation.

Calculation workflow: for a ceiling or floor, read $Q_d$ and $Q_s$ at the controlled price and compute shortage $Q_d-Q_s$ or surplus $Q_s-Q_d$. For a per-unit tax, the wedge is buyer price minus seller price; tax revenue is tax per unit $\times$ post-tax quantity. For a per-unit subsidy, government cost is subsidy per unit $\times$ post-subsidy quantity. Calculate consumer/producer surplus areas from labelled triangles or rectangles and compare with the original equilibrium.