Chapter(6:(Supply,(Demand,(and(Gov’t(Policies:(Control(on(Prices:"< price"ceiling+"legal(maximum(on(the(price(at(which(a(good(can(be(sold(< price"floor+(legal(minimum(on(the(price(at(which(a(good(can(be(sold(((a) equilibrium(is(below(the(ceiling,(so(it(is(not(binding(and(has(no(effect(on(quantity(sold((b) equilibrium(price(is(above(the(ceiling,(so(it(is(a(binding(constraint((shortage(of(supply)(< buyers(who(come(early,(get(the(product;(sellers(could(ration(product(according(to(personal(biases((family,(friends,(race)(< when%the%government%imposes%a%binding%ceiling%price%on%a%competitive%market,%a%shortage%of%the%good%arises,%and%sellers%must%ration%the%scarce%goods%among%the%large%number%of%potential%buyers(((a) equilibrium(price(is(above(the(floor,(the(price(floor(is(not(binding((b) equilibrium(price(is(below(the(floor,(price(floor(is(a(binding(constraint(< binding(price(floor(causes(a(surplus(< economists(believe(that(prices(are(have(the(job(of(balancing(supply(and(demand(and(coordinating(economic(activity((against(floors/ceilings)(Taxes:(< tax"incidence<(manner(in(which(the(burden(of(a(tax(is(shared(among(participants(in(a(market(How(taxes(on(Sellers(Affect(Market(Outcomes:(o Demand(curve(doesn’t(change,(but(good(is(less(profitable(at(every(price(o Costs(are(raised,(so(the(quantity(supplied( decreases((supply(shifts(left(or(upward)((o Equilibrium(price/quantity(changes,(market(for(the(product(decreases(o Taxes%discourage%market%activity;%buyers%pay%more%for%the%good%and%seller%receives%less(How(Taxes(on(Buyers(Affect(Market(Outcomes:(< supply(curve(is(unaffected,(tax(shifts(the(demand(< buyers(demand(a(smaller(quantity((demand(curve(shift(left(or(downward)((((< sellers(get(a(lower(price(for(the(product,(buyers(pay(a(lower(market(price,(effective(price(rises(< taxes%levied%on%sellers%and%taxes%levied%on%buyers%are%equivalent;%the%only%difference%is%WHO%sends%the%money%to%the%gov’t(Elasticity(and(Tax(Incidence:((((((a) figure(shows(a(tax(in(a(market(with(elastic(supply(and(inelastic(demand;(sellers(are(responsive(to(changes(in(the(price(of(the(good((supply(curve(is(flatter);(when(a(tax(is(imposed,(price(paid(by(buyers(rises(substantially((buyers(bear(tax(burden)((b) figure(shows(a(tax(in(a(market(with(inelastic(supply(and(elastic(demand;(buyers(are(responsive(to(change(in(price((demand(curve(is(flatter);(when(a(tax(is(imposed,(price(received(by(sellers(falls(substantially((sellers(bear(tax(bu rden)(< a%tax%burden%falls%more%heavily%on%the%side%of%the%market%that%is%less%elastic(o elasticity(measures(the(willingness(of(buyers/sellers(to(leave(the(market(when(conditions(become(unfavorable(o small(elasticity(of(demand(means(that(buyers(do(not(have(good(alternatives(to(consume(this(good(o small(elasticity(of(supply(means(that(sellers(do(not(have(good(alternatives(to(produce(this(good(o
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