Economics - Mankiw Ch06 Supply Demand, & Gov Policy

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.