ECON 120W Lecture Notes - Lecture 5: Price Ceiling, Price Floor, Shortage
Document Summary
Therefore, the price ceiling and floor has different weight of effect on different market. Tax: the burden of tax will be taken by both consumer and supplier. The demand and supply elasticity will determine the affect the tax on the price or quantity of the product. If the demand is price-elastic, the consumer will take less tax responsibility than suppliers. Reconsider the supply and demand curve: demand curve identifies the maximum consumers would pay for a product, supply curve identifies minimum price at which seller will sell. The east area of demand supply map is the area where both customer and producer are willing to buy and sell (the area stick on the y-axis) Equilibrium is a competitive market: maximizes economic surplus, efficient economic outcome. A few key caveats: not all markets are competitive, plosive or negative externalities in production.