ECO101H1 Chapter Notes - Chapter 6: Price Ceiling, Price Floor, Economic Equilibrium

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27 Sep 2016
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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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. Tax incidence the manner in which the burden of tax is shared among participants in a market. When the government imposes a binding price ceiling on a competitive market, a shortage arises, and sellers must ration the scarce goods among the large number of potential buyers. Common example of a price ceiling is rent control: in the short run: supply and demand are inelastic, in the long run: supply and demand are elastic. Price controls are often aimed at helping the poor. How does tax affect the buyers and sellers of the product: step 1: which curve does it affect. Immediate impact of the tax is on the demand for the product.

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