chaapter 6 notes Flashcards
what happens at equilibrium price
total quantity demanded by all buyers is = to total quantity supplied by all producers
what is a price celing
governments impose a maximum amount that you can charge for something like rent legally
what is a price floor
governments impose a minimum amount such as minimum wage legally
if the equilibrium price is below the ceiling what is this called
not binding because it has no affect
however, gov usually impose a price ceiling when they believe that prices are too high for something like rent. what happens
the price is below equilibrium price
a shortage would occur
because the ceiling prevents the prices from rising the shortages will persist. the ones lucky enough to find an apartment will be able to take advantage of the ceiling.
what happens when their is a price floor for lets say minimum wage
the minimum wage would be higher than the equilibrium
less jobs are available creating a surplus of workers. because it is higher than the equilibrium this surplus would permits (legally have to pay more than the equilibrium)
what does the government guarantee when imposing a price ceiling or price floor?
that the quantity supplied will NOT equal quantity demanded. some people benefit but others are hurt
what is one of the ways that gov. affect market outcomes other than price ceilings and floors
taxation
what are taxes designed to do for the most part? what does it also do
raise money for gov. operations. but it also changes market prices and and quantities exchanged
what is a different way of looking at the supply and demand curve
it shows the MINIMUM price needed to induce suppliers to produce each quantity and a MAXIMUM PRICE CONSUMERS ARE WILLING TO PAY FOR THEY ITEM
HOW DOES AN EXCISE TAX AFFECT EQUILIBRIUM when suppliers pay the tax to the gov
the demand curve is NOT affected
the supply curve will shift upward by the amount of the tax
the new equilibrium is where the new supply curve crosses the original demand curve
the price increases and demand falls
how is the excise tax consumed
part of it by the supplier and part by the consumer
the original max a consumer would buy add more
HOW DOES AN EXCISE TAX AFFECT EQUILIBRIUM when consumers pay the tax to the gov
the supply curve would be unaffected
the demand curve will shift downward by the amount of the tax
creating a new lower demand curve D2
d2 shows how much buyers are willing to give to suppliers per unit
new equilibrium is formed, market price falls per unit as well as the demand
