Chapter%2060 - CHAPTER 6 SUPPLY, DEMAND AND GOVERNMENT...

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1 CHAPTER 6 CHAPTER 6 SUPPLY, DEMAND AND GOVERNMENT SUPPLY, DEMAND AND GOVERNMENT POLICIES POLICIES
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2 Main issues What are price ceilings and price floors? Some examples of each? How do price ceilings and price floors affect market outcomes? How do taxes affect market outcomes? How does the outcome depend on whether the tax is imposed on buyers or sellers? What is the incidence of a tax? What determines the incidence?
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3 Government Policies That Alter the Private  Market Outcome Price controls Price ceiling : a legal maximum on the price of a good or service. Example: rent control. Price floor : a legal minimum on the price of a good or service. Example: minimum wage. Taxes The government can make buyers or sellers pay a specific amount on each unit bought/sold.
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4 EXAMPLE 1:   The Market for Apartments Rental price of apartments Equilibrium without price controls P Q D S $800 300 Quantity of apartments
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5 Effect of Price Ceilings A price ceiling above the equilibrium price is not binding - it has no effect on the market outcome. P Q D S $800 300 Price ceiling $1000
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Effect of Price Ceilings In the long run, supply and demand are more elastic so, the shortage is larger. P
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Chapter%2060 - CHAPTER 6 SUPPLY, DEMAND AND GOVERNMENT...

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