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Copyright © 2006 Thomson Learning 6 Supply, Demand, and Government Policies.

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Presentation on theme: "Copyright © 2006 Thomson Learning 6 Supply, Demand, and Government Policies."— Presentation transcript:

1 Copyright © 2006 Thomson Learning 6 Supply, Demand, and Government Policies

2 Figure 1 A Market with a Price Ceiling (a) A Price Ceiling That Is Not Binding Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Equilibrium quantity 4 Price ceiling Equilibrium price Demand Supply 3 100

3 Figure 1 A Market with a Price Ceiling Copyright©2003 Southwestern/Thomson Learning (b) A Price Ceiling That Is Binding Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Demand Supply 2Price ceiling Shortage 75 Quantity supplied 125 Quantity demanded Equilibrium price 3

4 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 of Apartments 0 Supply Controlled rent Rental Price of Apartment Demand Shortage

5 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 Rental Price of Apartment Quantity of Apartments Demand Supply Controlled rent Shortage

6 Figure 3 A Market with a Price Floor Copyright©2003 Southwestern/Thomson Learning (a) A Price Floor That Is Not Binding Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Equilibrium quantity 2 Price floor Equilibrium price Demand Supply 3 100

7 Figure 3 A Market with a Price Floor Copyright©2003 Southwestern/Thomson Learning (b) A Price Floor That Is Binding Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Demand Supply 4 Price floor 80 Quantity demanded 120 Quantity supplied Equilibrium price Surplus 3

8 Figure 4 How the Minimum Wage Affects the Labour Market Copyright©2003 Southwestern/Thomson Learning Quantity of labour Wage 0 labour demand labour Supply Equilibrium employment Equilibrium wage

9 Figure 4 How the Minimum Wage Affects the Labour Market Copyright©2003 Southwestern/Thomson Learning Quantity of labour Wage 0 labour Supply labour surplus (unemployment) labour demand Minimum wage Quantity demanded Quantity supplied

10 Figure 5 A Tax on Buyers Copyright©2003 Southwestern/Thomson Learning Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Price without tax Price sellers receive Equilibrium without tax Tax ( 0.50) Price buyers pay D1D1 D2D2 Supply,S1S1 A tax on buyers shifts the demand curve downward by the amount of the tax ( 0.50) Equilibrium with tax

11 Figure 6 A Tax on Sellers Copyright©2003 Southwestern/Thomson Learning 2.80 Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Price without tax Price sellers receive Equilibrium with tax Equilibrium without tax Tax (0.50) Price buyers pay S1S1 S2S2 Demand,D1D1 A tax on sellers shifts the supply curve upward by the amount of the tax (0.50)

12 Figure 7 A Payroll Tax Copyright©2003 Southwestern/Thomson Learning Quantity of labour 0 Wage labour demand labour supply Tax wedge Wage workers receive Wage firms pay Wage without tax

13 Figure 8 How the Burden of a Tax Is Divided Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price Demand Supply Tax Price sellers receive Price buyers pay (a) Elastic Supply, Inelastic Demand the incidence of the tax falls more heavily on consumers When supply is more elastic than demand... Price without tax than on producers.

14 Figure 8 How the Burden of a Tax Is Divided Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price Demand Supply Tax Price sellers receive Price buyers pay (b) Inelastic Supply, Elastic Demand than on consumers. 1. When demand is more elastic than supply... Price without tax the incidence of the tax falls more heavily on producers...


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