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EC 151 Ch 6 - EC 151 Ch 6 S D& Government Policies...

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Unformatted text preview: EC 151 Ch: 6 S, D, & Government Policies Controls on prices Controls on prices Taxes Controls on P Price ceiling vs. Price floor How P ceiling affects market outcomes Binding P ceiling vs. nonbinding P ceiling Binding P ceiling When the government imposes a binding P ceiling on a competitive market, a shortage of a good arises, and sellers must ration the scarce goods among the large number of potential buyers. Examples OPEC example Who is to blame for the shortage? Rent control in SR & LR example Controlled rent good idea or bad? Why does this happen? Who is most effected? Controls on P cont. How P floors affect market outcomes Binding P floor vs. nonbinding P floor Minimum wage example Why does unemployment happen? Who is most affected? Evaluating P controls Economists oppose P ceilings and P floors The crucial job of P is balancing S & D, as a result of P ceilings and P floors the balance gets distorted P controls are often aimed at helping the poor Do they? Taxes Tax incidence How taxes on buyers affect market outcomes How taxes on sellers affect market outcomes Tax incidence depends on forces of S & D Can congress distribute the burden of a payroll tax? Elasticity and tax incidence Elastic S & Inelastic D Inelastic S & Elastic D A tax burden falls more heavily on the side of the market that is less elastic Why? Who pays the luxury tax example ...
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