Beruflich Dokumente
Kultur Dokumente
5:
Government
Interven1on
The
Cost
of
Interfering
with
Market
Forces
Playconomics, LHS
A.
Price
Ceiling
Deni1on:
The
Price
Ceiling
represents
a
maximum
allowable
price
imposed
by
the
government.
when
Gov.
believes
that
P
is
unfairly
high
(to
protect
low-income
consumers)
Playconomics,
LHS
A.
Price
Ceiling
Say
Pmarket
=
$100
and
Pceiling
=
$80
A.
Price
Ceiling
Deni1on:
The
Deadweight
Loss
is
the
loss
in
economic
Playconomics, LHS
A.
Price
Ceiling
The
winners
of
this
policy
are
the
consumers
with
high
reservaOon
price
(i.e.,
high
willingness
to
pay)
!!
Solu1on:
If
the
government
wanted
to
help
the
low-income
households,
a
is
more
ecient.
Playconomics, LHS
B.
Price
Floor
Deni1on:
The
Price
Floor
represents
a
minimum
allowable
price
imposed
by
the
government.
when
Gov.
believes
that
P
is
unfairly
low
(to
protect
producers
in
a
certain
sector)
Playconomics,
LHS
B.
Price
Floor
Say
Pmarket
=
$100
and
Poor
=
$120
B.
Price
Floor
The
losers
of
this
policy
are
all
those
harmed
by
the
price
oor
!!
Solu1on:
The
losers
would
be
willing
to
pay
the
winners
the
exact
amount
they
gained
from
the
intervenOon
in
exchange
for
cancelling
the
price
oor
Playconomics, LHS
C.
TaxaOon
Unlike
the
price
ceiling
and
the
price
oor,
a
tax
Tax
revenues
can
be
used
to
within
a
society
C.
TaxaOon
Say
we
tax
producers
Playconomics, LHS
10
C.
TaxaOon
Say
we
tax
producers
(Who
bears
the
tax
burden?)
Playconomics, LHS
11
C.
TaxaOon
The
losers
of
this
policy
are
the
(P,
Q
)
or
the
(if
D
=
inelasOc
OR
S
=
perfectly
elasOc)
the
(if
S
=
inelasOc
OR
D
=
perfectly
elasOc)
The
winner
is
the
12
C.
TaxaOon
The
winner
is
use
tax
revenue
to
subsidize
or
reduce
taxes
on
other
markets
provide
public
goods,
etc.
13
C. TaxaOon
14
D.
Subsidy
Opposite
of
a
tax
Government
to
assist
certain
groups
of
consumers
(or
producers)
15
D.
Subsidy
Say
we
subsidize
producers
Playconomics, LHS
16
D.
Subsidy
The
winners
of
this
policy
are
the
consumers
and
producers,
but
it
costs
more
to
the
Government
then
it
benets
the
people.
Solu1on:
If
the
government
wanted
to
make
certain
goods
more
aordable,
a
is
more
ecient.
Playconomics, LHS
17
18