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govt - Price Ceilings Price Floors and Excise Taxes...

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Governments & markets slide 1 Price Ceilings, Price Floors, and Excise Taxes
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Governments & markets slide 2 Price ceiling: A price above which it is illegal to charge. Binding price ceiling: A price ceiling set below the equilibrium price.
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Governments & markets slide 3 A binding price ceiling S D q p p(max) Price can't rise above this level, so there's always excess demand.
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Governments & markets slide 4 A binding price floor S D q p p(min) Price can't fall below this level so there's always a surplus.
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Governments & markets slide 5 Binding price ceilings lead to shortages (excess demand). Binding price floors lead to surpluses (excess supply).
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Governments & markets slide 6 Additional examples: Rent control Minimum wage laws Minimum agricultural prices
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Governments & markets slide 7 AN IMPORTANT TAX PROBLEM Suppose the market for cigarettes is in equilibrium. Suppose the State of Michigan, in its wisdom, decides to impose a tax of $1 per pack on the sale of cigarettes.
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