How Government Actions Affect What We Buy and How Much We Pay

Government actions can change what we can buy and how much it costs. These changes happen through different rules like price limits, support payments, taxes, and safety rules. It's important to know how these actions affect consumers and prices.

Effects of Price Limits

1. Price Ceilings:

   • When the government sets a maximum price, like for rent, it can cause shortages. For example, during the COVID-19 pandemic in 2020, New York City stopped rent increases. This led to fewer homes available for rent.
   • A study found that price limits can lower the number of rental homes by about 15% over time.

2. Price Floors:

   • A minimum price, such as the minimum wage, can lead to too many people wanting jobs. For instance, when the UK raised the minimum wage to £10 per hour, about 100,000 low-skill jobs were lost.

Government Support (Subsidies)

• When the government gives support payments, it can help consumers by lowering prices. For example, the UK spends around £4 billion every year to help farmers. This means we can buy food at lower prices.
• But these support payments can also cause issues. Sometimes they lead to too much production of certain products. In the dairy industry, this overproduction led the UK government to spend over £1 billion on buying extra milk in just two years.

Taxes

• When the government puts taxes on certain goods, it can make people buy less of them. For example, the UK sugar tax, which started in 2018, made sales of sugary drinks drop by 30%. This tax helped lower childhood obesity rates.
• On the flip side, taxes can raise prices for consumers, making things more expensive. A report from Oxfam in 2021 showed that a 10% increase in value-added tax (VAT) would cost families around £3.4 billion more each year.

Rules and Regulations

• Rules that improve safety and quality can help consumers. For example, the EU's food safety laws have made food much safer.
• However, too many rules can reduce choices for consumers. This is seen in the rules on e-cigarettes in the UK, which make it harder for people to find possibly safer options.

Summary

In summary, government actions can help consumers and give them more choices. But they can also lead to problems like shortages and higher prices. Those in charge need to think carefully about the pros and cons of these actions to make sure they serve consumers well while keeping the market working properly.