Excise taxes are specific taxes on particular commodities such as gasoline, alcohol or cigarettes. Some domestic government policies take the form of quantity restrictions. An example is controls on the amount of pollutants that industries can emit. Also, in most countries there are restrictions on the production and sale of many drugs. The US prohibits the use of recreational drugs like marijuana and cocaine, as well as pharmaceuticals that have not been approved by the Food and Drug Administration.
Governments also provide subsidies for many purposes.
In agriculture, governments often have elaborate programs designed to raise the incomes of farmers. This includes the use of price floors, subsidized loans, payments to encourage fallow acreage etc. Although many domestic policies are complex regulations, the analysis here will focus on simple domestic tax and subsidy policies applied either to production or consumption. Many of the insights learned in this analysis, however, do carry over to more complex settings. One of the first points made in this section is that a domestic policy can be the basis for trade.