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Chapter 4 - Interfering in The Market (October 02, 2019)
Chapter 4 - Interfering in The Market (October 02, 2019)
Chapter 4 - Interfering in The Market (October 02, 2019)
Taxes
Restriction on Price
Restriction on Quantity
taxes
suppose a tax is imposed on energy drinks
Gov likes to tax alcohol 1 energy drinks
Market Model
Equilibrium price 100
Where is Q p s t there is a 50
gap between what buyer
pays and seller receives
As a result what buyer pay t sellers receive Different
prices graph
15 Amt of tax sellerhas to bear Both bearthe burden
35 Buyer's share
Who is beingtaxed
Thetax incidence is independent of the target of the tax
Economists don't like taxes but not for the same reason we do
Producer surplus i
decreases
pi
Government
Revenue 1
I
l
PS
l Demand
I
In Real Life
In remittingtaxes
Property Taxes 15000
Restrictions on Price
there are two types of price restrictions
Price Floor
price ceiling
price ceiling
maximumlupper limit above which prices cannot rise
In order for a price ceiling to be effective it must be established
below equilibrium price
Price
ceiling legally bounded
raise above i can be imprisoned
IRL
Oil crises US 1973
World Oil Crisis 197Os
Oil prices x 3 tripled
Everything's price
Inflation
President Nixon price ceiling on crude oil t gasoline
Operate above that Imprisonment
Fraud
Prices are artificially low
Not signalling to consumers that there is a
shortage
Will not cut back on supply until the supply is depleted
MAY cause stealing and murder
scarcity
Illegal Market pay any amount of money to get the item whichis
short Rather
paymore money than wait
Price floors
a lower limit1minimum below which prices cannot fall
for a pricefloor to beeffective it has to be established above
equilibrium price
Prices raise incentivize suppliers
SURPLUS
discourages consumers
Prices are forced to be artificially high
eg in grain
institute price floor
surplus of grains on market
At a high price suppliers can sell at a higher price
more profit BUT high prices reduces demand lesspeople
1
For minimum wage to be effective it must be higher than
what producers are willing to pay
supply restriction
Supply restrictions
Must be restricted to the left of the equilibrium qtybelow
vertical lineI wedge new supply curve kinked
Old Supply curve NULL and VOID upwardsscopingtothat
point
pa QR
nshorifage s
g
D
After this point pack
w w Q
better
Off
worse
off up shop and go
Demand Same
Supply Reduced
Fixed Amt no one else can enter unless someone trades which
is a higher price
Demand Restriction
Quantity restriction
downwards
sloping until it meets vertical point
SURPLUS Prices fall to eliminate this
p n DemandyQR
supply
l
I
I
un Q
Beller worse
off off
Nwc rations water