ECON 1000 Lecture Notes - Lecture 6: Demand Curve, Tax Incidence, Price Ceiling
16 Nov 2016
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As an economist we try to understand how the world works. Previous two chapters looked at role of scientist. Keep the price high, keep the price low. In chapter 4 we said price of ice-cream adjusts so qd = qs . Suppose one group is concerned consumers pay too much for ice-cream . Lobby the government for a price ceiling. Look at the effects of these two policies. Government imposes ceiling on price of ice-cream. Says nothing about determination of price below . At p=2 qs = 75, qd = 125, shortage = qd - qs = 50. Qd > qs and so there is a shortage . Come method is required to ration ice-cream. Policy intended to help ice-cream buyers has made some better off . After ceiling 75 people paid better off. But some are no longer able to buy ice cream. But now 25 people willing to pay cannot buy.
