ECO101

LECTURE 11
Instructor: Tanzeena Tabassum
Tax on Buyers
Tax incidences- Distribution of Tax burden
Graphical Illustration of

- Inelastic Demand and Elastic Supply

- Inelastic Supply & Elastic Demand
- For Eco101, we will assume that the tax burden is same.
Perfectly Inelastic Demand
Perfectly Elastic Demand
Perfectly Inelastic Supply
Perfectly Elastic Supply
Math Problem
Regulation in the Housing Market
A price ceiling is a regulation that makes it illegal to charge a price higher than

a specified level. When a price ceiling is applied to rents in housing markets, it is

called a rent ceiling.

The effect of a price (rent) ceiling depends on whether it is imposed at a

level that is above or below the equilibrium price (rent).
What happens when there is a shortage in the Housing
Market?

● Search Activity Increases

● Black Market Activity Increases- A black market is an illegal market in which
the price exceeds the legally imposed price ceiling. Black markets occur in
rent-controlled housing markets.with strict enforcement, the black market rent
is equal to the maximum price that renters are willing to pay for the available
housing
Inefficiency of a Rent Ceiling
Minimum Wage
A price floor is a regulation that makes it illegal to trade at a price lower than a
specified level. When a price floor is applied to labour markets, it is called a
minimum wage. If a minimum wage is set below the equilibrium wage, the
minimum wage has no effect.
If a minimum wage is set above the equilibrium wage, the minimum wage is
in conflict with market forces and does have some effects on the labour
market.
Reference
Chapter 6- Markets in Action (Parkins)
Chapter 8- Costs of Taxation (Mankiw)