MJC 09S101 Economics

We know that one of the way the government tries to intervene in the case of market power is through taxes. But did you know that taxes imposed by government on monopolistic firms have a special name given to them? (This is just additional information)

These taxes are called Windfall Taxes.

What Does Windfall Tax Mean?
A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.

Investopedia explains Windfall Tax
As with all tax initiatives instituted by governments, there is always a divide between those who are for and those who are against the tax. The benefits of a windfall tax include proceeds being directly used by governments to bolster funding for social programs. However, those against windfall taxes claim that they reduce companies' initiatives to seek out profits. They also believe that profits should be reinvested to promote innovation that will in turn benefit society as a whole. Windfall taxes will always be a contentious issue debated between the shareholders of profitable companies and the rest of society. This issue came to a head in 2005, when oil and gas companies, such as Exxon Mobil who reported profits of US$36 billion for the year, experienced unusually large profits due to rising energy prices.

(Taken from: http://www.investopedia.com/terms/w/windfalltax.asp)

Jun Hao