Supply, Demand, and Government Policies

Price Controls:
- Price Ceiling: Legal maximum price; e.g., rent control.
- Binding ceilings create shortages.
- Price Floor: Legal minimum price; e.g., minimum wage.
- Binding floors create surpluses (unemployment).
Impact of Taxes:
- Taxes raise buyers' prices and lower sellers' prices.
- Resulting in decreased equilibrium quantity.
- Tax incidence (burden) shared between buyers and sellers based on price elasticity of demand and supply:
- More inelastic side bears more tax burden.
Shortages and Rationing:
- Shortages lead to inefficient rationing methods (e.g., long lines, discrimination), unlike market pricing, which allocates resources efficiently.
Examples:
- Rent control in San Francisco exemplifies price ceilings.
- Minimum wage affects teen workers.
Elasticity and Tax Incidence:
- If supply is more elastic than demand, buyers bear more burden.
- If demand is more elastic, sellers bear more burden.