ECON 111 Lecture Notes - Lecture 6: Plasma Display, Price Ceiling, Price Floor
Document Summary
A price ceiling is a legal maximum on the price of a good or service. If the price ceiling is below the equilibrium price, so the price ceiling is binding, the quanity demanded exceeds the quanity supplied. Because of the resuling shortage, sellers must in some way raion the good or service among buyers. A price loor is a legal minimum on the price of a good or service. If the price loor is above the equilibrium price, so the price loor is binding, the quanity supplied exceeds the quanity demanded. Because of the resuling surplus, buyers" demands for the good or service must in some way be raioned among sellers. When the government levies a tax on a good, the equilibrium quanity of the good falls. That is, a tax on a market shrinks the size of the market. A tax on a good places a wedge between the price paid by buyers and the price received by sellers.
