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
price ceiling is not binding means
the price that balances supply and demand is below the ceiling
Pricing ceiling is a binding constraint when
the equilibrium price is above the price ceiling
When the government imposes a binding price ceiling on a competitive market, it will lead to
a shortage of the good because at that price level, there are more demand than supply. If there is no price ceiling, the increased price will shy away those who could not afford hence demand decrease to the equilibrium.
rationing mechanisms that develop under price ceilings are rarely desirable because
inefficient, waste time, and discriminating.
Free & competitive market ration goods with
Price.
When shortage caused by a binding pricing ceiling, seller will
Ration the available goods.
a binding price floor causes
surplus
If minimum wage is above the equilibrium level, it will cause
unemployment.
tax incidence refers to
how the burden of a tax is distributed among the various people who make up the economy.
Taxes levied on sellers and taxes levied on buyers are equivalent
when tax is impose, buyer will consume less compare to equilibrium without tax, while seller will produce based on new pricing minus tax. The gap between demand and supply curve at that quantity point is equal to imposed tax.