Lecture 5 - Control of prices, taxes and subsidies (13/10/25)

What is a maximum price in market terms?

A maximum price, often called a price ceiling, is the highest legal price that can be charged for a good or service.

What does minimum wage represent in economic terms?

Minimum wage is a type of price ceiling that sets the lowest legal wage that can be paid to workers.

What is an indirect tax?

An indirect tax is a tax imposed on the expenditure of goods, rather than on income or profits.

Define a specific tax.

A specific tax is a fixed sum that is charged per unit sold.

What is an ad valorem tax?

An ad valorem tax is a tax based on a certain percentage of the price of a good.

What is the incidence of tax when demand is inelastic?

When demand is inelastic, the incidence of tax largely falls on consumers.

How does a tax affect consumer and producer shares?

With a tax, the larger tax burden falls on consumers, while producers typically bear a smaller share.

What happens to the tax burden when demand is elastic?

With elastic demand, the tax burden tends to fall more on producers.