Topic 6- Government Policies Flashcards
(38 cards)
Why are price controls engaged in a country?
Because the govt thinks that the market price is unfair to buyers or sellers
two types of price controls
Price cieling
Price floor
Why do buyers and sellers have conflicting interests
Buyers want lower price
Sellers want higher pirce
What happens if price ceiling is above the Market equilibrium price?
If above market equilibrium orice, then the price cieling is not binding, bc laws of supply nd demand will bring prices to equilibrium!
What happens if price ceiling is below market equilibrium price?
A shortage! The price ceiling is binding and quantity demanded is more than quantity supplied; PEOPLE WHO WANT GOOD CANT HAVE IT!
Do Price Ceilings help all consumers?
Though thas the intention, ultimately some are better off while others are worse off!!!
Price ceilings are for,,,,,,,,
Price floors are for………
Consumers
Suppliers
what can happen with price ceilings and price floors?
create discrimination! sometimes w price ceilings sellers onlyy sell to those they prefer
w price floors buyers only buy from those they prefer
important example of price floor
MINIMUM WAGE
What happens with price floors
LABOUR MARKET
-benefits
-drawbacks
SURPLUS! Because more people selling then people buying
LABOUR MAREKT: when price ceiling on minimum wage less firms buy labour so MASSIVE UNEMPLOYMNET
benefits those with jobs bc better money
damages those without bc more unemployment
Can govvernments legislate who pays how much tax?
EX: Can govt levy a tax on just buyers? just sellers?
Nope, because the amount of taxes paid by buers/sellers is determined by the elasticity of the uspply and demand curves!!
If supply curve is inelastic, and demand curve is elastic, who will pay the tax?
SUPPLIERS!!! BECAUSE SUPPLIERS NEED TO SELL NO MATTER WHAT
WHOEVER IS INELASTIC PAYS
If demand curve is inelastic and supply curve is elastic, who will pay the tax?
BUYERS!!! BECAUSE THE DEMAND IS NEEDED AND ENCCESARY
WHOEVER IS INELASTIC PAYS
Who pays the tax burden?
Who ever has INELASTIC CURVE!
The incidence of a tax (that is, the division of the tax burden) does not depend on whether the tax is levied on buyers or sellers.
!!!!!!!!!!
How are prices brought into equilibrium when price controls in effect?
BLACK MARKETS! AND diwcrimination
what happens when price cieling on housing market
-housing shortage!
-low quality housing
-black market ot make up for lost profits
when is a price floor common?
when the amount of buyers is ore than amount of sellers ~~~ LABOUR
Why does placing a tax on jus the consumers or jus the producers not work?
because both suffer regardles, ONLY DIFFERENCE IS WHO SENDS THE MONEY OT GOVT!
HOW to do tax questions?
- determine which curve moves
- determine which direction (left=down) (right=up)
- determine the tax wedge
TAX WEDGE WHERE IS THE NEW EQUILIBRIUM quantity
Where the tax wedge (vertical gap in between the shifted curve) is equal to the size of the tax
If demand is perfectly inelastic (I) who pays the tax?
Buyers pay the whole tax!
market price increases by the total amount of the tax
If demand is perfectly Elastic (-) who pays the tax?
Sellers pay the whole tax!
market price does not rise at all bc sellers must cover it
If supply is perfectly inelastic who pays?
SELLERS PAY
