AP Microeconomics / Unit 2: Supply and Demand
2.8 The Effects of Government Intervention in Markets
Notes
- Price ceiling below equilibrium (rent control): shortage.
- Price floor above equilibrium (minimum wage): surplus.
- Taxes: raise price to buyers, lower price to sellers, create deadweight loss. The more inelastic side bears more of the tax.
Practice
A binding price ceiling causes:
Price held too low.
A tax on a good with very inelastic demand is paid mostly by:
They can't easily cut back.
Deadweight loss from a tax is:
Efficiency loss.
Ready for more? Take the Unit 2 test.