When the government places an INDIRECT TAX (GST) on a good, it receives a % of the selling price every time one unit is sold. The gov’t usually taxes goods with INELASTIC DEMAND such as CIGARETTES as when the price rises the quantity demanded will not fall very much meaning overall they can earn a higher amount of tax revenue.
The gov’t may wish to establish a new industry which will earn it a lot of GDP eg. Cloud-computing, or which will have a positive impact on its environment eg. renewable energy, therefore it can offer SUBSIDIES to domestic start-up firms, to enable them to compete against the already established companies, or to cover the initial high costs of R&D. Or if it wishes to protect domestic from foreign competition it can put tariffs (import taxes), and/or quotas on imports.
The gov’t may wish to support low-income households by offering subsidized services such as bus passes, or by directly offering free merit goods such as education and healthcare. In addition they can put maximum prices on important staple foods such as bread and milk as well as give welfare payments such as unemployment and housing benefits.
Whenever the government provides a subsidy to a domestic firm or puts a tariff on imports it is aimed at increasing domestic production however when they impose a tax on domestic goods they aim to reduce domestic production.
If the government wishes consumers to consume more goods which they deem beneficial to them and society, but which are under-provided by the market system such as education and healthcare, they can subsidise provision so it is cheaper or free to access, similarly if they wish to reduce consumption of goods which they deem non-beneficial to society but which are over-provided by the market system eg. cars and cigarettes they can tax them to reduce consumption.
As mentioned, the government uses taxes and subsidies to impact production levels as they believe the market has not delivered the optimal level for society, hence the market has ‘failed’ to achieve allocative efficiency and therefore they need to intervene to correct its failings.
Left to the free-market those with productive in-demand resources earn more income than others and therefore can buy more goods and services and enjoy a greater standard of living. As such the market system results in a lot of income inequality, so the government tries to promote equity by redistributing income, by collecting taxes and using it to provide welfare payments, subsidies etc to low-income earners.
Find REAL WORLD EXAMPLES of gov’t interventions used to achieve EACH of these reasons. (MUST include, tax, subsidy, price controls, government regulation, and nudge) Paste the links to the article in this google sheet LINK_01
RWE: 'PRICE CEILING' LINK