• Four of the most commonly used methods to address market failure in markets are indirect taxation, subsidies, maximum prices, & minimum prices

• Additional methods of intervention include regulation, nationalisation, privatisation, & State provision of public goods

Maximum Price

• A maximum price is set by the government below the existing free market equilibrium price & sellers cannot legally sell the good/service at a higher price

• Governments will often use maximum prices in order to help consumers. Sometimes they are used for long periods of time e.g. housing rental markets. Other times they are short-term solutions to unusual price increases e.g. petrol

Minimum Price

• A minimum price is set by the government above the existing free market equilibrium price & sellers cannot legally sell the good/service at a lower price

• Governments will often use minimum prices in order to help producers or to decrease consumption of a demerit good e.g. alcohol

Indirect Taxation

• An indirect tax is paid on the consumption of goods/services

  • It is only paid if consumers make a purchase

  • It is usually levied by the government on demerit goods to reduce the quantity demanded (QD) and/or to raise government revenue

  • Government revenue is used to fund government provision of goods/services e.g education