Government Intervention in Markets
H1 Economics - syllabus 8843, 2026
Explain how taxes, subsidies, price controls and quotas change prices, quantities and who gains, and judge whether they work.
- The four tools governments use
Governments change markets with taxes, subsidies, price controls and quotas.
- How a tax changes the market
A tax shifts supply up by the tax, so buyers pay more, sellers keep less and less is sold.
- How a subsidy changes the market
A subsidy shifts supply down by the subsidy, so buyers pay less, sellers get more and more is sold.
- Maximum prices and shortages
A maximum price below equilibrium creates a shortage, so some buyers go without.
- Minimum prices and surpluses
A minimum price above equilibrium creates a surplus, and sellers may earn less, not more.
- Minimum wages and buffer stocks
A minimum wage is a price floor for labour. A buffer stock buys and sells a crop to keep its price within a band.
- Quotas
A quota caps quantity, so the price rises until buyers want only the permitted amount.
- Who pays and who receives
Use the right price: buyers pay one price, sellers receive another, and the government covers the gap.
- Why elasticity decides how well a policy works
The same tax cuts consumption a lot when demand is elastic, and very little when it is inelastic.
- Who actually benefits?
A policy only helps the people who can actually get the good.
- How to judge a policy
Judge a policy against its aim, compare it with an alternative, and say what the answer depends on.
- Case study practice: the price of a COE
A whole H1 case study: 40 marks, about 90 minutes in the exam. Answer every part, then compare with the suggested answers.
What you will be able to do
I can describe taxes, subsidies, price controls and quotas as ways a government intervenes in a market.
Syllabus 8843, 2.1.3(a). Government Intervention in Markets: Governments may intervene in markets in the form of taxes, subsidies, price controls (maximum and minimum prices) and quantity controls (quotas)
Taught in The four tools governments use, How a tax changes the market, How a subsidy changes the market, Maximum prices and shortages, Minimum prices and surpluses, Minimum wages and buffer stocks, Quotas, Case study practice: the price of a COE
I can show how each intervention changes price, quantity, consumer spending and producer revenue.
Syllabus 8843, 2.1.3(b). Government Intervention in Markets: Government intervention in markets can affect the equilibrium price and quantity, consumer expenditure and producer revenue
Taught in Who pays and who receives, Who actually benefits?, Case study practice: the price of a COE
I can explain how price elasticities of demand and supply change the effect of an intervention.
Syllabus 8843, 2.1.3(c). Government Intervention in Markets: Impact of government intervention on markets may be affected by price elasticities of demand and supply
Taught in Why elasticity decides how well a policy works, How to judge a policy, Case study practice: the price of a COE
Original teaching notes