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Government Policies ((Price ceiling (Binding (Some rationing mechanisms,…
Government Policies
Price ceiling
Not Binding
The price ceiling is above the equilibrium price
No effect on price and quantity
Binding
The price ceiling is below the equilibrium price
Shortage (Qd>Qs)
Some rationing mechanisms
Long line
Discrimination
Price flooring
Not Binding
The price flooring is below the equilibrium price
No effect on the market outcome
Binding
The price flooring is above the equilibrium price
Surplus (Qd<Qs)
Discrimination
A Tax on Buyers (and Sellers)
Discourage market activity
Both Buyers and Sellers share the tax burden
The quantity of a good sold is smaller
Elasticity and Tax incidence
The study of who bears the burden of a tax
Less elasticity => more heavily
Vietnam-Netherlands Programme - 2017
Do Huu Luat
