DQ-6 - better benefits, it leads to a change in the...

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It is true that price is controlled by supply and demand in capitalistic markets. In spite of supply and demand forming the most important elements in deciding the prices, there are several other elements like regulations and other elements that can also impact the price equation. This is possible in case of price ceilings. The same amount of sales tax and excise tax results in an change in the consumer surplus and a corresponding and inverse change in the government surplus, thus causing a change in the social total surplus. Moreover as people get more benefits for a lesser price, or pays a higher price for
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Unformatted text preview: better benefits, it leads to a change in the deadweight loss. So, it results in almost same amount of social total surplus price ceiling is good for consumers and can create smaller social welfare as it helps protect them against extreme economic conditions and price hikes. Price floor is beneficial to the government and traders and so has a positive impact on social total surplus. It increases revenue to the government and does not let it go below the price floor limit....
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This note was uploaded on 04/11/2011 for the course ACC 305 taught by Professor Allison during the Spring '11 term at Western Intl..

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