L3-Regulation - Price Regulation and Tax Chapter 6 1....

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Price Regulation and Tax Chapter 6
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1. CONTROLS ON PRICES z Price Ceiling A legal maximum on the price at which a good can be sold. An examples: rent control z Price Floor A legal minimum on the price at which a good can be sold. An examples: the minimum wage
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How Price Ceilings Affect Market Outcomes z Two outcomes are possible when the government imposes a price ceiling: The price ceiling is not binding if set above the equilibrium price. The price ceiling is binding if set below the equilibrium price, leading to a shortage. Graphically,
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How Price Ceilings Affect Market Outcomes z Effects of Price Ceilings z A binding price ceiling creates shortages because Q D > Q S . z Example: Gasoline shortage of the 1970s (see the case study in the textbook.) nonprice rationing z Examples: Long lines, discrimination by sellers
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Rent Control z Rent controls are ceilings placed on the rents that landlords may charge their tenants. z
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This note was uploaded on 05/15/2008 for the course ECON 2106 taught by Professor Minjaesong during the Spring '06 term at Georgia Tech.

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L3-Regulation - Price Regulation and Tax Chapter 6 1....

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