EC120 Chapter Notes - Chapter 6: Price Ceiling, Tax Incidence, Price Floor
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EC120 Full Course Notes
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Buyers want goods as cheap as possible and sellers want goods to be as expensive as possible: if buyers lobby the gov"t then a price ceiling might be put in place (price maximum cap) If the price ceiling is above the equilibrium price this is not binding and has no efect on price or quanity. If the price loor is below the equilibrium price this is not binding and has no efect. If the price loor is above the equilibrium price this is a binding constraint in which a surplus is created and sellers who are willing to sell at the. Tax incidence: the manner in which the burden of taxis shared among paricipants in a market. How taxes on buyers afect market outcomes: taxes discourage market acivity. When a good is taxed, the quanity of the good sold is smaller in the new equilibrium: buyers and sellers share the burden of taxes.
