Copyright © 2006 Thomson Learning 6 Supply, Demand, and Government Policies.
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Copyright © 2006 Thomson Learning 6 6 Supply, Demand, and Government Policies
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Transcript of Copyright © 2006 Thomson Learning 6 Supply, Demand, and Government Policies.
Copyright © 2006 Thomson Learning
66Supply, Demand, and Government Policies
Figure 1 A Market with a Price Ceiling
(a) A Price Ceiling That Is Not Binding
Quantity ofIce-Cream
Cones
0
Price ofIce-Cream
Cone
Equilibriumquantity
€4 Priceceiling
Equilibriumprice
Demand
Supply
3
100
Figure 1 A Market with a Price Ceiling
Copyright©2003 Southwestern/Thomson Learning
(b) A Price Ceiling That Is Binding
Quantity ofIce-Cream
Cones
0
Price ofIce-Cream
Cone
Demand
Supply
2 PriceceilingShortage
75
Quantitysupplied
125
Quantitydemanded
Equilibriumprice
€3
Figure 2 Rent Control in the Short Run and in the Long Run
Copyright©2003 Southwestern/Thomson Learning
(a) Rent Control in the Short Run(supply and demand are inelastic)
Quantity ofApartments
0
Supply
Controlled rent
RentalPrice of
Apartment
Demand
Shortage
Figure 2 Rent Control in the Short Run and in the Long Run
Copyright©2003 Southwestern/Thomson Learning
(b) Rent Control in the Long Run(supply and demand are elastic)
0
RentalPrice of
Apartment
Quantity ofApartments
Demand
Supply
Controlled rent
Shortage
Figure 3 A Market with a Price Floor
Copyright©2003 Southwestern/Thomson Learning
(a) A Price Floor That Is Not Binding
Quantity ofIce-Cream
Cones
0
Price ofIce-Cream
Cone
Equilibriumquantity
2
Pricefloor
Equilibriumprice
Demand
Supply
€3
100
Figure 3 A Market with a Price Floor
Copyright©2003 Southwestern/Thomson Learning
(b) A Price Floor That Is Binding
Quantity ofIce-Cream
Cones
0
Price ofIce-Cream
Cone
Demand
Supply
€4Pricefloor
80
Quantitydemanded
120
Quantitysupplied
Equilibriumprice
Surplus
3
Figure 4 How the Minimum Wage Affects the Labour Market
Copyright©2003 Southwestern/Thomson Learning
Quantity oflabour
Wage
0
labourdemand
labourSupply
Equilibriumemployment
Equilibriumwage
Figure 4 How the Minimum Wage Affects the Labour Market
Copyright©2003 Southwestern/Thomson Learning
Quantity oflabour
Wage
0
labourSupplylabour surplus
(unemployment)
labourdemand
Minimumwage
Quantitydemanded
Quantitysupplied
Figure 5 A Tax on Buyers
Copyright©2003 Southwestern/Thomson Learning
Quantity ofIce-Cream Cones
0
Price ofIce-Cream
Cone
Pricewithout
tax
Pricesellersreceive
Equilibrium without taxTax (€0.50)
Pricebuyers
pay
D1
D2
Supply, S1
A tax on buyersshifts the demandcurve downwardby the amount ofthe tax (€0.50).
€3.30
90
Equilibriumwith tax
2.803.00
100
Figure 6 A Tax on Sellers
Copyright©2003 Southwestern/Thomson Learning
2.80
Quantity ofIce-Cream Cones
0
Price ofIce-Cream
Cone
Pricewithout
tax
Pricesellersreceive
Equilibriumwith tax
Equilibrium without tax
Tax (€0.50)
Pricebuyers
payS1
S2
Demand, D1
A tax on sellersshifts the supplycurve upwardby the amount ofthe tax (€0.50).
3.00
100
€3.30
90
Figure 7 A Payroll Tax
Copyright©2003 Southwestern/Thomson Learning
Quantityof labour
0
Wage
labour demand
labour supply
Tax wedge
Wage workersreceive
Wage firms pay
Wage without tax
Figure 8 How the Burden of a Tax Is Divided
Copyright©2003 Southwestern/Thomson Learning
Quantity0
Price
Demand
Supply
Tax
Price sellersreceive
Price buyers pay
(a) Elastic Supply, Inelastic Demand
2. . . . theincidence of thetax falls moreheavily onconsumers . . .
1. When supply is more elasticthan demand . . .
Price without tax
3. . . . than on producers.
Figure 8 How the Burden of a Tax Is Divided
Copyright©2003 Southwestern/Thomson Learning
Quantity0
Price
Demand
Supply
Tax
Price sellersreceive
Price buyers pay
(b) Inelastic Supply, Elastic Demand
3. . . . than onconsumers.
1. When demand is more elasticthan supply . . .
Price without tax
2. . . . theincidence of the tax falls more heavily on producers . . .
