ECON 200 Lecture Notes - Lecture 5: Tax Incidence, Price Controls, Price Ceiling

• School: University of Arizona
• Department: Economics
• Course: ECON 200
• Professor: Ryan Johnson

Document Summary

Interests of buyers and sellers always conflict because buyers want lower prices while sellers want higher prices. Governments can choose to impose legal maximum and minimum prices. Price ceiling: a legal maximum on the price at which a good can be sold. Price floor: a legal minimum on the price at which a good can be sold. If the price ceiling is above the equilibrium market price, then it is said to be non-binding. If the price ceiling is below the equilibrium market price, it is said to be binding. Quantity demanded exceeds quantity supplied and shortages occur. Rationing mechanisms will being to develop in order to compensate for the shortage. Binding price ceilings are enforced with the intention of helping buyers, but not all buyers are able to benefit from the policy. If the price floor is below the equilibrium market price, it is said to be non-binding.