Chapter 6: Price Ceilings and Price Floors
Price Ceiling
A maximum price set by government below the market-generated equilibrium price EX: something is $200 originally then gov says it can only be sold for $150 (below the market equilibrium price)
how to find buyers total expenditure
EP - NP X OQ- NQ
Price Floor
Minimum price set by government set above equilibrium price
rent control laws dictate
a max rent that landlords may charge tenants
minimum wage laws dictate
a minimum wage that firms may pay workers
rent control is an example of
a price ceiling
a non binding price floor is set
below EP
if a price celing is a binding consrtraint
buyers cant buy all they want
if gov removes tax on good, price paid by buyers
decreases & price recieved by sellers increases
binding
does effect above equilibrium pricw
results of price ceiling
the quantity supplied decreases the quantity demanded increases there is a shortage
you get $300 taken out of your check, which is true about this
your employer has to pay that $300 the $300 is not necessarily the true burden of the tax that falls on the empolyee this is payroll tax
If a price ceiling is a binding constraint on a market, then
buyers cannot buy all they want to buy at the price ceiling.
the price paid by buyers in a market will decrease if the government
decreases a binding price floor in that market
if graph says tax it is the
difference between the two lines, before and after. just subtract. when they equal the same unit****
non-binding
doesnt effect below equilibrium price
tax imposed on sellers of a good will lower the
effective price received by sellers and lower EQ
when a payroll tax is enacted, the wage recieved by workers
falls, and wage paid by firms rises
a binding minimum wage tends to
have great impact on market for teen labor cause labor surplus cause unempolyment
the quantity sold in a market will decrease if the government
increase a tax on the good sold in that market
if the gov removes a binding price ceiling then the price recieved by sellers will
increase and quantity sold will increase
the price paid by buyers in a market will increase if the government
increases a binding price ceiling in the market
more elastic = more or less tax
less
more inelastic = more or less tax
more
if there is a surplus or shortage look a ___ on graph
new line ( so use 2 dots)
if not about surplus/shprtage look at _____
one dot
results of price floor
quantity supplied increases quantity demanded decreases there is a surplus
if the minimum wage exceeds the equilibrium wage
quantity supplied of labor will exceed quantity demanded
if a price floor is a binding constraint
sellers cant sell all they want
workers determine the _____ of labor, and firms determine the _____ for labor
supply demand
tax at $50 becomes 30
supply curve shift down the effective price recieved by sellers will increase by LESS THAN "x"