Chapter 6 Flashcards
Price Ceiling
A legal maximum on the price at which a good can be sold.
Binding Price Ceiling
Cann create shortages if equilibrium price is higher than price ceiling.
Price Floor
A legal minimum on the price at which a good can be sold.
Binding Price Floor
ineffective if price is below equilibrium and more effective but can create surplus if above equilibrium.
Non-binding Price Floor
ineffective if price is below or above equilibrium.
Evaluating price controls
Tax incidence
Tax incidence is the study of who bears the burden of taxation.
For example, when government levies a tax on a good, the tax incidence determines the degree to which buyers and sellers will be worse off.
Study a tax on sellers
Study a tax on buyers
How taxes affect market outcomes
Elasticity and Tax Incidence
Elasticity and Tax Incidence
Elasticity and tax incidence 2
Subsidy
A subsidy to sellers
How subsidies affect market outcomes
Who benefits from the First Home Owner Grant scheme?
Note: If supply demanded is elastic, the buyers will receive more benefits.
