6-1 Controls on Prices

How Price Ceilings Affect Market Outcomes

When the price is below the ceiling, the price ceiling is not binding, but if the price is above the ceiling, it's a binding constraint on the market.
When a binding price ceiling is imposed on a competitive market by the government, the good experiences a rise in shortages, causing sellers to ration the scarce goods.

A price ceiling places legal maximums on prices, while price floors place legal minimums.
Minimum wages dictate the lowest price paid to laborers.
Minimum wages help improve the income of workers but hurt those who're in search of jobs and cannot find any.
The minimum wage is not binding for experienced and skilled workers because their equilibrium wages are well above the minimum.
Equilibrium wages for teenagers are typically at the minimum but because of a lack of training and experience, teenagers typically accept these lower wages and/or are willing to work as interns without pay, in some cases. Because of this, minimum wages are usually more binding for teens than any other age group in the workforce.

Prices are responsible for millions of business and consumer decisions.
An earned income tax credit is a government program where incomes are supplemented to low-wage workers.

Tax incidence: the manner in which the burden of a tax is shared among participants in a market.

The quantity of ice cream remains constant but the supply curve shifts to the left (upward) because of taxes on the sellers of ice cream.
The size of the ice cream market shrinks because sellers sell less and buyers buy less.
Earned Income Tax Credit targets low-income families.
Activity in markets is discouraged by taxes, resulting in smaller quantities of a good to be sold if the good is being taxed in the new equilibrium.
Both buyers and sellers are burdened with taxes, so while buyers are paying more for goods, sellers are receiving less.

Taxes levied on sellers and buyers are the same.
Payroll taxes are taxes on wages that firms pay their workers.
Lawmakers have the power to determine whether taxes come from the pockets of buyers or sellers.

A tax negatively affects an inelastic market more than an elastic one.
When there's little elasticity of supply, sellers do not have many other options to produce this specific good.

When the price is below the ceiling, the price ceiling is not binding, but if the price is above the ceiling, it's a binding constraint on the market.
When a binding price ceiling is imposed on a competitive market by the government, the good experiences a rise in shortages, causing sellers to ration the scarce goods.

A price ceiling places legal maximums on prices, while price floors place legal minimums.
Minimum wages dictate the lowest price paid to laborers.
Minimum wages help improve the income of workers but hurt those who're in search of jobs and cannot find any.
The minimum wage is not binding for experienced and skilled workers because their equilibrium wages are well above the minimum.
Equilibrium wages for teenagers are typically at the minimum but because of a lack of training and experience, teenagers typically accept these lower wages and/or are willing to work as interns without pay, in some cases. Because of this, minimum wages are usually more binding for teens than any other age group in the workforce.

Prices are responsible for millions of business and consumer decisions.
An earned income tax credit is a government program where incomes are supplemented to low-wage workers.

Tax incidence: the manner in which the burden of a tax is shared among participants in a market.

The quantity of ice cream remains constant but the supply curve shifts to the left (upward) because of taxes on the sellers of ice cream.
The size of the ice cream market shrinks because sellers sell less and buyers buy less.
Earned Income Tax Credit targets low-income families.
Activity in markets is discouraged by taxes, resulting in smaller quantities of a good to be sold if the good is being taxed in the new equilibrium.
Both buyers and sellers are burdened with taxes, so while buyers are paying more for goods, sellers are receiving less.

Taxes levied on sellers and buyers are the same.
Payroll taxes are taxes on wages that firms pay their workers.
Lawmakers have the power to determine whether taxes come from the pockets of buyers or sellers.

A tax negatively affects an inelastic market more than an elastic one.
When there's little elasticity of supply, sellers do not have many other options to produce this specific good.