Price ceiling
A legal maximum on a price at which a good can be sold
EXAMPLE: rental control
Price Floor
A legal minimum on the price at which a good can be sold
EXAMPLE: minimum wages
Outcomes of price ceilings
1 — above equilibrium —» NOT binding —» nothing changes, the equilibrium price stays the same
2 — below equilibrium —» Binding constraint —» SHORTAGE —» sellers must ration among scarce goods among potential buyers (—» queueing/ favouritism/ discrimination/ quality decrease)
Outcomes of price floors
1 — below equilibrium — NOT binding —» nothing changes, the equilibrium price stays the same
2 — above equilibrium — Binding constraint —» SURPLUS
Minimum wages
An example of price floors policies in labor market
When min wages rises the income of those workers who have jobs rises, BUT lowers the income of would-be workers who now cannot find a job (—» unemployment)
Has the greatest impact on the market of teenagers labor (teenagers have the lowest equilibrium)
Tax incidence
The manner in which the burden of a tax is shared among participants in a market
Taxes on buyers = taxes on sellers — same outcome
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A tax burden falls more heavily on the side of the market that is less elastic
Payroll tax
НАЛОГ НА ЗАРАБОТНУЮ ПЛАТУ
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A tax on the wages that firms pay to their workers
(FICA (Federal Insurance Contribution Act) which goes for SSN and Medicare
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Usually lies on the shoulders of workers more b/c labor supply is less elastic than labor demand
