ECON 200 Lecture Notes - Lecture 15: Demand Curve, Earned Income Tax Credit, Working Poor

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

Document Summary

Two effects of imposing a price floor. If the pf is below equilibrium price, the price floor is not binding, therefore market forces naturally move the economy toward equilibrium and the pf has no effect. If the pf is above equilibrium price, the pf is a binding constraint on the market, bc when market price hits floor it cannot fall any further. Minimum wage results in unemployment due to surplus. When policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society s resources. Price controls are often aimed at helping the poor. Wage subsidies raise the living standards of the working poor without discouraging firms from hiring them. An example of a wage subsidy is the earned income tax credit, a government program that supplements the incomes of low-wage workers. All governments use taxes to raise revenue for public projects.