ch6 - the large potential buyers How price floors affect...

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Chapter 6: Supply Demand and Government Policies  Controls on prices: Price ceiling- legal max on the price at which a good can be sold o Not binding if price that balances supply and demand is lower o Ex. rent control Price floor- legal min on the price at which a good can be sold o Binding constraint- price is higher o Ex. minimum wage When market price hits ceiling, it can’t raise further When gov’t imposes a binding price ceiling on a competitive market, a  shortage of the good arises, and sellers must ration the scarce goods among 
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Unformatted text preview: the large potential buyers How price floors affect market outcomes: A binding price floor causes a surplus Evaluating price controls: Ex. wage subsidy- earned income tax credit, govt program that supplements the incomes of low-wage workers Taxes: Tax incidence- distribution of a tax burden Decide whether law affects supply or demand curve; which way the curve shifts; examine how the shift affects the quilibrium 13/09/2007 09:55:00 13/09/2007 09:55:00...
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ch6 - the large potential buyers How price floors affect...

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