BUSAD 120 Chapter Notes - Chapter 3: Price Ceiling, Price Floor, Economic Equilibrium
Document Summary
Price controls are used when policymakers believe the market price is unfair to buyers or sellers. A price ceiling is a legal maximum on the price at which goods can be sold. A price floor is a legal minimum on the price at which goods can be sold. All governments use taxes to raise revenues for public projects and services. How the introduction of a tax affects the market equilibrium. Tax incidence is the study of who bears the burden of a tax. Supposing the government passes a law requiring sellers of ice-cream to send sh. 50 to the government for each ice-cream they sell. For sellers, the tax is like an additional production cost. At any given quantity, sellers increase the price by sh. 50 in order to cover the extra cost of the tax. The supply curve shifts up by an amount equal to the tax. Market price increases from to . 30.
