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Economics IGCSEPDF 47
118 pagesrevision 46932
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demand for homes. A reduced supply of homes and higher demand for them will cause a
shortage of supply in relation to demand.
• Direct provision of merit and public goods – since there is littleincentivefortheprice
mechanism to supply these goods, governments usually provide them.Forexample,free
education, free healthcare, public parks. One way the govt. can dothisisbynationalising
certain products it considers essential to be provided by a governingauthority,ratherthan the
market. For example, in India, the government operates the only railwaynetworkbecause only it
can provide cheap services to its millions of poor, daily passengers.
• Taxation on products – imposing a tax on products (indirect taxes)withnegativeexternalities
can discourage its production and consumption. For example, a taxontobaccowillmake it
expensive to produce and consume. In the diagram below, a tax hasbeenimposedona
product, causing its supply to shift from S to S1. The price rises fromPtoP1becauseof the
additional tax amount, and the quantity traded in the market falls fromQtoQ1.