Markets in Action Summary

Definition: Regulation preventing prices from exceeding a specified level.
Effects:
- Above Equilibrium: No effect (e.g., rent ceiling).
- Below Equilibrium: Causes housing shortages.
Graph Analysis:
- Equilibrium price = €3.50; rent ceiling = €3; results in excess demand (shortage).
Market Outcomes:
- Increase in search activity due to scarcity.
- Emergence of black markets.
- Inefficiency and deadweight loss in resource allocation.

Definition: Regulation preventing prices from falling below a specified level.
Effects:
- Below Equilibrium: No effect (e.g., minimum wage).
- Above Equilibrium: Causes surpluses when quantity supplied exceeds quantity demanded.
Graph Analysis:
- Equilibrium price = €2; price floor = €3; results in surplus.

Tax Incidence: Division of tax burden between buyers and sellers is not straightforward.
Price Adjustments:
- Full tax rise = buyer pays.
- Partial rise = shared burden.
- No rise = seller pays.
Effect on Equilibrium: Taxes typically shift the supply curve and decrease equilibrium quantity, creating deadweight loss.
Elasticity Influence:
- More inelastic demand or supply leads to a larger share of the tax burden on that side.
- Perfectly inelastic demand = buyers bear tax; perfectly elastic demand = sellers bear tax.
Market Efficiency: Taxes generally make markets less efficient, except under perfect inelastic conditions.

Rent Ceiling: Leads to shortages and possible discrimination in tenant selection; black markets may develop.
Tax on Gasoline: Results in surpluses, deadweight loss, and decreased consumer surplus, making markets less efficient.
Elasticity Scenarios: The influence of tax burden distribution based on demand and supply elasticity.