EC120 Lecture Notes - Lecture 7: Demand Curve, Tax Incidence, Price Ceiling
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EC120 Full Course Notes
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Ec120 - lecture 7 - supply, demand, and government policies. This chapter analyzes various types of government policy using only the tools of supply and demand. We begin by considering policies that directly control prices. Then, we consider the impact of taxes. Price ceiling: a legal maximum on the price at which a good can be sold. Sellers cannot charge a price higher than the price ceiling. Usually used to protect consumers with low incomes. Let"s assume that the government imposes a price ceiling on the market for ice cream. If the price ceiling is greater than the equilibrium price, it does not affect the market, and the price ceiling is not binding. If the price ceiling is less than the equilibrium price, it does affect the market, and the price ceiling is binding. Quantity supplied is less than quantity demanded, resulting in a shortage. Price floor: a legal minimum on the price at which a good can be sold.