ECO1104 - Chapter 6
Terms in this set (8)
A legal maximum on the price at which a good can be sold.
A legal minimum on the price at which a good can be sold.
The manner in which the burden of a tax is shared among participants in a market.
What happens if the government imposes a price ceiling above the equilibrium price?
Nothing happens because the price ceiling is not binding.
What happens if the government imposes a binding price ceiling? (that is, an imposed price ceiling below the equilibrium price.)
A shortage of the good arises, and sellers must ration the scarce goods among the large number of potential buyers.
What happens if the government imposes a price floor below the equilibrium price?
Nothing because the price floor is not binding.
What happens if the government imposes a binding price floor? (that is, an imposed price ceiling above the equilibrium price.)
A surplus is caused.
What are the two market outcomes that can occur when a tax is imposed?
1. A market with very elastic supply and relatively inelastic demand.
2. A market with very relatively inelastic supply and a very elastic demand.
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