Calculations of Intervention Effects (HL Only)

This topic explains how government interventions — price ceilings, price floors, indirect taxes and subsidies — change market prices, quantities and the economic welfare of consumers, producers and the government. At Higher Level, these effects are quantified using numerical data or supply-and-demand diagrams so the distribution of gains and losses (consumer surplus, producer surplus, tax revenue or government expenditure) can be compared across stakeholders. Elasticities of demand and supply determine how the burden of an indirect tax is shared between consumers and producers.