Government Intervention in Markets
H2 Economics - syllabus 9570, 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.
- Taxes, subsidies and surplus
A tax shrinks consumer and producer surplus, raises revenue and creates a deadweight loss.
- Price controls and surplus
A binding price control cuts the quantity traded, so there is a deadweight loss.
- Model essay (a): what a rent cap does
A top 10-mark answer, written in about 20 minutes, shows who gains from a rent cap, why a shortage follows, and why it widens as supply becomes more elastic.
- Model essay (b): rent subsidy or rent cap?
A top 15-mark answer, written in about 30 minutes, compares who each policy helps and its side effects, then judges using the elasticity of supply and the aim.
- Case study practice: the price of a COE
A whole H2 case study: 30 marks, about 75 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 9570, 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, Model essay (a): what a rent cap does, Model essay (b): rent subsidy or rent cap?, Case study practice: the price of a COE
I can show how each intervention changes price, quantity, spending, revenue, consumer surplus and producer surplus.
Syllabus 9570, 2.1.3(b). Government Intervention in Markets: Government intervention in markets can affect the equilibrium price and quantity, consumer expenditure and producer revenue, consumer surplus and producer surplus
Taught in Who pays and who receives, Who actually benefits?, Taxes, subsidies and surplus, Price controls and surplus, Model essay (a): what a rent cap does, Model essay (b): rent subsidy or rent cap?, 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 9570, 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, Model essay (b): rent subsidy or rent cap?, Case study practice: the price of a COE
Original teaching notes