Why would they do it? To keep the price down to an acceptable level.. During wartime price controls may be imposed on essential items such as petrol, rice etc... Gainers & Losers?Gai
Trang 1Applications of Demand
and Supply
Topic 3
Trang 5Price Ceilings
equilibrium.
Why would they do this?
What is the result?
Who benefits? Who loses?
What is likely to happen?
Trang 6Why would they do it?
To keep the price down to an acceptable level.
During wartime price controls may be
imposed on essential items such as petrol, rice etc
To help the poor & the disadvantaged
Trang 8What are likely to happen?
Trang 10Gainers & Losers?
Gainers
Consumers who are
able to obtain supplies
at the price ceiling
Trang 11Price Controls- Consumer
Surplus & Producer Surplus
What about B & E?
net loss in total surplus
Trang 12 Why would they do this?
What is the result?
Who benefits? Who loses?
What is likely to
Trang 13Why does the government do it?
To support prices (income) in important sectors of the economy (eg Agriculture).
To protect workers (eg minimum wages)
Trang 15Gainers & Losers?
Gainers
Suppliers who receive
higher price per unit
and probably, higher
income
Workers who are in job
receive a higher wage
Trang 16Price Controls, CS & PS (contd.)
What about B & E?
net loss in total
Trang 17Taxes on Producers
Supply curve shifts up
vertical shift = amount of tax
Equilibrium price increases, equilibrium quantity decreases
Notice the difference in amount of tax and
increase in price
As elasticity of demand and supply vary, the burden changes
Trang 18Taxes on Producers
Effects of imposing tax on producers:
So
S1P
inelastic Producers’ tax burden
Trang 19Taxes on Producers
Trang 20Taxes on Producers
Trang 21Taxes on producers
Trang 22Taxes on Producers
Trang 23Taxes on Consumers
Demand curve shifts down
vertical shift = amount of tax
Equilibrium price decreases, equilibrium quantity decreases
Notice the difference in amount of tax and
decrease in price.
As elasticity of demand and supply vary, the burden changes
Trang 24Elasticity and Tax burden
- Summary
So, the burden of tax is not affected by who it is levied on (producer or consumer)