FS08EC2106_L6 - ECON 2106-C Prof B-C Kim Demand-Supply and Government Policies • We study two types of government polices in demand-supply model

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON 2106-C Prof. B-C Kim Demand-Supply and Government Policies • We study two types of government polices in demand-supply model. – Price controls: price ceiling and price floor – Taxes • Effects of price controls and tax on buyers and sellers are main objectives in this chapter. CONTROLS ON PRICES • Are usually enacted when policymakers believe the market price is unfair to buyers or sellers. • Price Ceiling – A legal maximum on the price at which a good can be sold. • Price Floor – A legal minimum on the price at which a good can be sold. How Price Ceilings Affect Market Outcomes • 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. Figure 1 A Market with a Price Ceiling (a) A Price Ceiling That Is Not Binding Quantity of Ice-Cream Cones Price of Ice-Cream Cone Equilibrium quantity $4 Price ceiling Equilibrium price Demand Supply 3 100 The market clears at $3 and the price ceiling is ineffective. Figure 1 A Market with a Price Ceiling (b) A Price Ceiling That Is Binding Quantity of Ice-Cream Cones Price of Ice-Cream Cone Demand Supply 2 Price ceiling Shortage 75 Quantity supplied 125 Quantity demanded Equilibrium price $3 Figure 1 A Market with a Price Ceiling (b) A Price Ceiling That Is Binding Quantity of Ice-Cream Cones Price of Ice-Cream Cone Demand Supply 2 Price ceiling Shortage 75 Quantity supplied 125 Quantity demanded Equilibrium price $3 How Price Ceilings Affect Market Outcomes • Can you explain how the supply shortage can be resolved in reality? - Example: Gasoline shortage last week in Atlanta vs. Gasoline shortage of the 1970s- Example: Rent Control in New York • What if the city council of Atlanta places a price ceiling below the equilibrium rent in order to help some poor GT students? Figure 2 The Market for Gasoline with a Price Ceiling (a) The Price Ceiling on Gasoline Is Not Binding...
View Full Document

This note was uploaded on 02/08/2011 for the course ECON 2106 taught by Professor Minjaesong during the Fall '06 term at Georgia Institute of Technology.

Page1 / 30

FS08EC2106_L6 - ECON 2106-C Prof B-C Kim Demand-Supply and Government Policies • We study two types of government polices in demand-supply model

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online