Taxes and subsidies. Taxes are something that can
increase the price paid by the buyers and lower the prices received by the
sellers. So when the taxes decrease the quantity produced, it leads to
underproduction. Taxes can be incidence with the elastisity if the demand and
the supply when the division between buyers and sellers depends on the
elasticities of demand and supply.
Subsidies are a payment that the government give to
the producer which can decrease the prices paid by buyers and increase the
prices received by the sellers. Subsidies...
