Government Intervention & Market Efficiency

Price Ceilings

The maximum price a seller can charge for a good

• Results in shortage: Q_d>Q_s

Price Floor

The minimum price a seller can charge for a good

• Results in a surplus: Q_d<Q_s

Excise Tax

For every unit made, the producers must pay $

• Goal is to make produces to want to produce less because the good is dangerous or unwanted (cigarettes, alcohol)

Causes an upward shift to the left

Tax Revenue

Its split into consumer tax and producer tax

Upper box - Consumer tax

Lower box - Producer tax

How does inelastic demand affect tax

If the good is inelastic, even if the good with tax consumers will buy it, so consumers get most of the tax.

How does elastic demand affect tax

If the good is elastic, it means with a high price consumers wont buy it, so to keep the price lower consumers pay more tax

Import Quota

A limit on how many goods can be important

• Goal to increase domestic production and consumption

Q_d - Q_s= Import Quota

Tariff

A tax imposed on imported goods that increases world price

• Goal to increase domestic production and consumptions