Supply,Demand and Government Policies
Controls on Prices
Price Ceiling
Price Floor
Effect Market Outcomes
Not Binding
Binding
Set above equilibrium price
Set below equilibrium price
Shortage
Quantity demanded > Quantity supplied
Effect Market Outcomes
Not binding
Binding
Set below equilibrium price
Set above equilibrium price
Surplus
Quantity supplied > Quantity demanded
Taxes
Effect Market Outcomes
Taxes discourage market activity
Good is taxed, Quantity sold smaller
Buyers and Sellers share tax burden
Elasticity and Tax Incidence
Depends on price elasticities of supply and demand