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"