Supply, demand and government policies Flashcards
1
Q
What are the two government policies that alter the private market outcome?
A
1) price controls (price ceiling and floor)
2) taxes (specific amount on each unit)
2
Q
What is a price ceiling and price floor?
A
ceiling: legal maximum on the price of a good or service
floor: a legal minimum on the price of a good or service
3
Q
What happens if the ceiling is below the equilibrium price?
A
Shortage (excess demand)
4
Q
Explain what happens if a tax is imposed upon the buyers of pizzas in this scenario:
The tax is 1.5 dollars
A
5
Q
Explain what happens if a tax is imposed upon the sellers of pizzas in this scenario:
The tax is 1.5 dollars
A
6
Q
Does it matter whether the tax is imposed upon the buyer or the seller?
A
No, the effect on P and Q, and the tax incidence are the same
