Governments influence the allocation of resources through public expenditure, taxation and regulation
Governments shape what gets produced and consumed in an economy. They do this by spending money, charging taxes, and setting rules that businesses and consumers must follow.
Real World
The UK government levies £3.50 per pack tobacco duty (taxation), funds the NHS (public expenditure), and requires workplaces to be smoke-free (regulation) — three simultaneous tools all targeting the negative externalities of smoking.
Exam Focus
In 'explain how governments influence resource allocation' questions, use a diagram showing the effect on price and quantity to access top-band marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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