Ch.6+Supply,+Demand,+and+Government+Policie

We've, now, learned some of the basic components (supply, demand, elasticity, and such). NOW, it's time to APPLY!

CONTROLS ON PRICES
Hmm... What would happen if suddenly the principal came along and told the students that whatever you buy in the cafeteria, the highest you would need to pay is $3. LOL There is no more need to talk about this; one second, bell rings for lunch; two seconds later, no more lunch.

This seriously sounds ridiculous (the example itself was preposterous), but governments make these kinds of acts in economy. This maximum legal limit of a price of a product is called **price ceiling**.

[|*Price Ceiling (Source)]

Price Ceilings, though, can have great effect or have no effect at all. If the price ceiling is higher than the equilibrium price, it has no effect. When the Price ceiling is lower than the equilibrium price

Sometimes, governments do the opposite. They put a limit to a price not to go lower a certain point. This is called a **price floor**.

[|*Price Floor (Source)]

Taxes. The reason why our dinners in restaurants get expensive in a second; also, the reason why we go to Guam, instead.



[|*Tax On Buyers & Sellers]

Would the behavior of the buyers and sellers (you know what we call this right? That's right! ELASTICITY) make some changes to our tax?



[|*Tax & Elasticity]

media type="youtube" key="c_7BbjPjztM" width="425" height="350" [|*Minimum Wage]

__**Key Concepts**__
 * price ceiling**: maximum price a good has to be sold chosen by the government
 * price floor**: minimum price a good has to be sold chosen by the government
 * tax incidence**: how the burden of tax is shared among consumers and suppliers

Questions 1. What is the maximum legal price for a good called? 2. What is the term for the burden of tax being shared in the market?

Answers 1. price ceiling 2. tax incidence