AP Microeconomics Flashcards: The Effects of Government Intervention in Markets
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 16 cards to help you master important concepts.
How do taxes and subsidies impact government finances?
Taxes affect government revenues, while subsidies affect government costs.
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How do taxes and subsidies impact government finances?
Taxes affect government revenues, while subsidies affect government costs.
What is deadweight loss?
Deadweight loss represents the losses to buyers and sellers that result from government intervention in an efficient market.
What are the forms of government intervention mentioned that affect all market structures?
Government policies such as price floors, price ceilings, and other forms of price and quantity regulation affect incentives and outcomes in all market structures.
Who bears more of a subsidy's benefit when supply is more elastic than demand?
The side of the market with lower elasticity receives more of the benefit, so consumers would receive a larger share of the subsidy.
What is the effect of government intervention in a market that is already producing at an efficient quantity?
Government intervention in a market producing the efficient quantity, through policies like taxes or price controls, can only decrease allocative efficiency.
What are two common forms of government price intervention?
Two common forms of government price intervention are price floors, which set a minimum price, and price ceilings, which set a maximum price.
How do taxes and subsidies affect supply and demand curves?
Taxes and subsidies change consumer and producer incentives, which influences their behavior and shifts the supply and demand curves accordingly.
What is the relationship between allocative efficiency and government intervention?
If a market is already allocatively efficient, any government intervention through taxes, subsidies, price controls, or quantity controls can only decrease that efficiency.
If a government imposes a tax in an efficient market, what specific loss in efficiency is created?
The tax creates deadweight loss, which represents the total loss of surplus to buyers and sellers due to the intervention.
Define government quantity intervention.
Government quantity intervention, or quantity controls, are policies that regulate the amount of a good that can be produced or sold in a market.
How do government policies like price controls alter market outcomes?
Government policies alter consumer and producer behaviors by influencing their incentives, which in turn affects market outcomes.
What is tax incidence?
Tax incidence refers to how the burden of a tax is shared among participants in a market, which depends on the elasticity of supply and demand.
A question on an AP exam asks you to calculate the change in consumer surplus after a price ceiling is imposed. What general skill is this testing?
This is testing the ability to calculate changes in market outcomes resulting from government policies using data from a graph or table.
What determines the incidence of a tax in a perfectly competitive market?
The incidence of a tax imposed on a good traded in a perfectly competitive market depends on the relative elasticity of supply and demand.
What fundamental market element do government policies like taxes and price controls alter?
These government policies alter the incentives for consumers and producers, thereby changing their behavior.
If demand for a product is perfectly inelastic and a tax is imposed on sellers, who pays the entire tax?
Because the incidence of a tax depends on elasticity, consumers with perfectly inelastic demand will bear the entire burden of the tax.