Chapter 6 - Chapter 6 Lecture 1 Key questions to address:...

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Chapter 6 Lecture 1
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Key questions to address: What are price ceilings and price floors? How do price ceilings and price floors affect market outcomes? How do taxes affect market outcomes? What is the incidence of a tax?
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Govt. policies that alter the private market outcome Price controls : a.Price ceiling : legal maximum on the price of a good or service. Ex. Rent control b.Price floor : legal minimum on the price of a good or service. Ex. Minimum wage Taxes : The govt. can make the buyers or sellers pay a specific amount on each unit bought/sold. We will use the supply/demand model to see how each policy affects the market outcome
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SUPPLY, DEMAND, AND GOVERNMENT POLICIES 4 EXAMPLE 1: The Market for Apartments Eq’m w/o price controls P Q D S Rental price of apts $800 300 Quantity of apartments
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GOVERNMENT POLICIES 5 How Price Ceilings Affect Market Outcomes A price ceiling above the eq’m price is not binding has no effect on the market outcome. P
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Chapter 6 - Chapter 6 Lecture 1 Key questions to address:...

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