Price floors: princes below which is illegal to charge. They cause a surplus. The government usually buys up surpluses. This will eventually cause the supply curve to shift left, establishing a new equilibrium price. The min wage is an example of a price floor. It creates unemployment. Suppliers who get higher prices win from price floors. All demanders and suppliers who can’t sell their product due to floors lose. Create DWL. Price ceilings: prices above which it is illegal to charge (e.g., rent ceilings). They cause a shorage. This creates a black market for illegal sale of the product. Buyers who buy at the lower price win from ceilings. All sellers and buyers who can no longer buy the product because it is too expensive lose. Create DWL. Price ceilings and floors won’t have any effect on the market if the floor is below the equilibrium or if the ceiling is above the equilibrium. Taxes shift the supply curve to the left. The amount of the tax is the vertical distance the curve moves at a certain quantity. The price doesn’t change the entire amount of the tax because a leftward shift of supply causes a temporary surplus, which brings the price down. Tax revenue =tax x quantity. Tax incidence refers to the division of the amount of the tax between the buyer and the supplier. Depends on elasticities of supply and demand. If Ed>Es (D curve is flatter than S) the price rises only a little, Qd declines a lot, supplier pay a lot of the tax, and consumers pay little. If Ed<Es (D curve is steeper than S), price rises a lot, Qd declines just a little, the suppliers pay little tax, and the consumers pay a lot. If supply curve is very elastic , the supplier pays just a little bit of the tax, and most of the tax is passed to the consumer. If supply curve is very inelastic , most of the tax is paid by the supplier, and the consumer pays only a small portion of the tax. If demand is completely elastic , the supplier pay all of tax. If demand is completely inelastic , the consumer pays all of the tax. Illegal goods: Making buying a good illegal shifts the demand curve to the left. Making selling a good illegal shifts the supply curve to the left. Making both buying and selling a good illegal shifts both the demand and supply curves to the left. On the whole, free trade , increases society’s total surplus. There are winners and losers. The U.S. will export goods if the domestic price is less than the world price. Exporting goods increases domestic producer surplus, reduces domestic consumer surplus, and increases total surplus. Exports=Qs-Qd. The U.S. will
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