Kinh tế học - Chapter 6: Supply, demand and government policies

Supply, Demand and Government PoliciesChapter 6Copyright © 2001 by Harcourt, Inc.All rights reserved.   Requests for permission to make copies of any part of thework should be mailed to:Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777.Supply, Demand, and Government PoliciesIn a free, unregulated market system, market forces establish equilibrium prices and exchange quantities.One of the things government can do is to set price controls when the market price is seen as unfair to either buyers or sellers.Price Ceilings & Price FloorsPrice Ceiling A legally established maximum price at which a good can be sold. (Rent Controls) Price FloorA legally established minimum price at which a good can be sold. (Price Supports for Agriculture) Price CeilingsTwo outcomes are possible when the government imposes a price ceiling: The price ceiling is not binding if set above the equilibrium price. The price ceiling is binding if set below the equilibrium price, leading to a shortage. Binding means that there is an economic impact.A Price Ceiling That Is Binding...$3Quantity ofIce-CreamCones0Price ofIce-CreamCone2DemandSupplyEquilibriumpricePriceceilingShortage125Quantitydemanded75QuantitysuppliedHarcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.A Price Ceiling That Is Not Binding...$43Quantity ofIce-CreamCones0Price ofIce-CreamConeDemandSupplyPriceceilingEquilibriumprice100EquilibriumquantityHarcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.Effects of Price CeilingsA binding price ceiling creates ... shortages because QD > QS.Example: Gasoline shortage of the 1970s nonprice rationing Examples: Long lines, Discrimination by sellersThe Price Ceiling on Gasoline Is Not Binding...$4P1Quantity ofGasoline0Price ofGasolineQ1DemandSupplyPriceceiling1. Initially, the price ceiling is not binding...The Price Ceiling on Gasoline Is Binding...P1Quantity ofGasoline0Price ofGasolineQ1DemandS1PriceceilingS22. but when supply falls...P23. the price ceiling becomes binding...4. resulting in a shortage.Rent ControlRent controls are ceilings placed on the rents that landlords may charge their tenants.Rent control can make housing more affordable.With a price ceiling, you cannot go above the ceiling.But what about the landlords?Rent Control in the Short Run...Quantity ofApartments0Rental Price ofApartmentDemandSupplyControlled rentShortageSupply and demand for apartments are relatively inelastic-Why is the supply curve vertical?Rent Control in the Long Run...Quantity ofApartments0Rental Price ofApartmentDemandSupplyControlled rentShortageBecause the supply and demand for apartments are more elastic... What happens in the long run?rent control causes a large shortagePrice FloorsWhen the government imposes a price floor, two outcomes are possible.The price floor is not binding if set below the equilibrium price.The price floor is binding if set above the equilibrium price, leading to a surplus. Think of price floors as not being able to go below the floor.A Price Floor That Is Not Binding...$3Quantity ofIce-CreamCones0Price ofIce-CreamCone100EquilibriumquantityEquilibriumpriceDemandSupplyPricefloor2A Price Floor That Is Binding...$3Quantity ofIce-CreamCones0Price ofIce-CreamConeEquilibriumpriceDemandSupplyPrice floor$4120Quantitysupplied80QuantitydemandedSurplusHarcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.Effects of a Price FloorA binding price floor causes . . . a surplus because QS >QD. nonprice rationing is an alternative mechanism for rationing the good, using discrimination criteria.Examples: The minimum wage, Agricultural price supports State Minimum Wages The Minimum WageQuantity ofLabor0WageEquilibriumwageLabor demandLabor supplyA Free Labor MarketEquilibriumemploymentMinimumwageThe Minimum WageQuantity ofLabor0WageLabor demandLabor supplyQuantitysuppliedQuantitydemandedLabor surplus(unemployment)A Labor Market with a Minimum WageWhat are some potential impacts of taxes?Taxes are used to raise money for the government.Taxes discourage market activity.When a good is taxed, the quantity sold is smaller. Buyers and sellers share the tax burden.But who bears the burden-tax incidence.3.00Quantity ofIce-Cream Cones0Price ofIce-CreamCone10090$3.30PricebuyerspayD1D2Equilibriumwith taxSupply, S1Equilibrium without taxImpact of a 50¢ Tax Levied on Buyers...2.80PricesellersreceiveCopyright © 2001 by Harcourt, Inc. All rights reservedPricewithouttax Tax ($0.50)3.00Quantity ofIce-Cream Cones0Price ofIce-CreamCone10090S1S2Demand, D1Impact of a 50¢ Tax on Sellers...Price without tax2.80Price sellers receive$3.30Price buyers payEquilibrium without taxCopyright © 2001 by Harcourt, Inc. All rights reservedA tax on sellers shifts the supply curve upward by the amount of the tax ($0.50). Tax ($0.50)Equilibriumwith taxThe Incidence of TaxIn what proportions is the burden of the tax divided?How do the effects of taxes on sellers compare to those levied on buyers?The answers to these questions depend on the elasticity of demand and the elasticity of supply.Elastic Supply, Inelastic Demand...Quantity0PriceDemandSupplyTax1. When supply is moreelastic than demand...2. ...theincidence of thetax falls moreheavily onconsumers...3. ...than onproducers.Price without taxPrice buyers payPrice sellers receiveInelastic Supply, Elastic Demand...Quantity0PriceDemandSupplyPrice without taxTax1. When demand is moreelastic than supply...2. ...theincidence of the tax falls more heavily on producers...3. ...than on consumers.Price buyers payPrice sellers receive