chapter6 - ECON 2106 Prof. B-C Kim Inthischapter,

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ECON 2106 Prof. B-C Kim
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2 In this chapter,  In this chapter,  look for the answers to these questions: look for the answers to these questions: What are price ceilings and price floors ? What are some examples of each? How do price ceilings and price floors affect market outcomes? How do taxes affect market outcomes? How do the effects depend on whether the tax is imposed on buyers or sellers? What is the incidence of a tax ? What determines the incidence? 2
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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.
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Figure 1 A Market with a Price Ceiling (a) A Price Ceiling That Is Not Binding Quantity of Ice-Cream Cones 0 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.
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Figure 1 A Market with a Price Ceiling (b) A Price Ceiling That Is Binding Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Demand Supply 2 Price ceiling Shortage 75 Quantity supplied 125 Quantity demanded Equilibrium price $3
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How Price Ceilings Affect Market Outcomes Can you explain how the supply shortage can be resolved in reality? - 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?
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CASE STUDY: Rent Control in the Short Run and Long Run Rent controls are ceilings placed on the rents that landlords may charge their tenants. The goal of rent control policy is to help the
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chapter6 - ECON 2106 Prof. B-C Kim Inthischapter,

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