Economics 10a Chapter Notes - Chapter 6: Earned Income Tax Credit, Tax Incidence, Demand Curve
Supply, Demand, and Government Policies
Chapter 6
● Economists
○ as scientists: develop and test theories to explain the world around them
○ as policy advisers: use their theories to help change the world for the better
● Rent control
○ maximum rent that landlords may charge tenants
● Minimum wage laws
○ the lowest wage that firms may pay workers
● Price controls are enacted when policymakers believe the market price is unfair
● Taxes raise revenue for public purposes
● Price ceiling
○ a legal maximum on the price at which a good can be sold
○ ceiling is not binding if the price at which an item is being sold is below the price
ceiling
○ has no effect on the price or quantity sold
○ if price at which item is being sold is above the price ceiling, the ceiling is a
binding constraint on the market
○ price ceilings help the buyers
● Price Floor
○ a legal minimum on the price at which a good can be sold
○ like price ceilings, price floors are an attempt by the government to maintain
prices at something other than equilibrium
○ Equilibrium price above price floor= not binding
Document Summary
As scientists: develop and test theories to explain the world around them. As policy advisers: use their theories to help change the world for the better. Maximum rent that landlords may charge tenants. The lowest wage that firms may pay workers. Price controls are enacted when policymakers believe the market price is unfair. A legal maximum on the price at which a good can be sold. Ceiling is not binding if the price at which an item is being sold is below the price ceiling. Has no effect on the price or quantity sold. If price at which item is being sold is above the price ceiling, the ceiling is a binding constraint on the market. A legal minimum on the price at which a good can be sold. Like price ceilings, price floors are an attempt by the government to maintain prices at something other than equilibrium. Equilibrium price above price floor= not binding.