Question

Questions about government policies

a) what are the definitions of two government policies that alter the price market outcome in chapter 6.

b) Using the supply-demand diagram model to do analysis about price control.

c) Explain tax on buyers and tax on sellers. What is the difference between two cases and what is wedge driven by tax, please using the graph to see how the tax affect the market outcome.

Answer 1

a) Two government policies those alter the price market outcome are minimum wage (price floor) and rent control laws (price ceiling).

minimum wage: If the government set a minimum wage above the market equilibrium it creates a binding constraint and there will be a surplus of labor which creates unemployment.

rent control: Rent control laws generally try to keep rent low and make apartment affordable at a low price. But it discourages landlord maintaining their building and creates a shortage of house for rent.

This price ceiling and price floor change the market outcome and price.