2.7 Role of government in microeconomics

• Governments intervene to raise revenue, support firms, support low-income households, and influence production or consumption

• Intervention can aim to correct market failure and promote equity

• Main tools include price ceilings, price floors, indirect taxes, subsidies, direct provision, command and control regulation, and legislation

• Diagram: price ceiling, price floor, indirect tax, and subsidy with effects on markets and stakeholders

• Government intervention affects market outcomes and stakeholders

• Consequences should be analysed and evaluated using efficiency, equity, and welfare criteria

• Consumer nudges are a form of government intervention in markets

• Nudges influence behaviour without banning choices or changing prices directly

• Calculate effects of price ceilings and price floors on markets and stakeholders

• Calculate effects of indirect taxes and subsidies on markets and stakeholders