Economics 1021A/B Chapter Notes - Chapter 6: Price Ceiling, Tax Incidence, Economic Equilibrium
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ECON 1021A/B Full Course Notes
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A rent ceiling set below the equilibrium rent creates: a housing shortage, increased search activity, a black market. Are rent ceilings fair: fair-rules view, anything that blocks voluntary exchange is unfair so rent ceilings are unfair, fair-result view, a fair outcome is one that bene ts the less well off. Taxes: everything you earn and almost everything you buy is taxed, we will explore who really pays a tax and how lawmakers don"t make that decision. Equivalence of tax on buyers and sellers: tax on buyers has the same effects as the tax on sellers causing the equilibrium quantity to decrease by the same amount. Tax incidence and elasticity of demand: the division of the tax between buyers and sellers depends in part on the elasticity of demand. There are two extreme cases: perfectly inelastic demand buyers pay, perfectly elastic demand sellers pay.