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Supply, Demand,
and Government
Policies
Supply Supply
$4 Equilibrium
Price price
ceiling
$3 $3 Price
ceiling
$2
Equilibrium
price Shortage
Demand Demand
Price of
Gasoline
S2
1. Initially
the price
ceiling is S1 2.but when S1
not supply falls
binding
P2
Price Price
ceiling ceiling
3.the price
P1 P1 ceiling
becomes
4.resulting binding
in a
shortage
Demand Demand
0 Q1 Quantity of 0 QS QD Q1 Quantity of
Gasoline Gasoline
Supply Supply
Controlled Controlled
rent rent
0 Quantity of 0 Quantity of
Apartments Apartments
Supply Supply
Surplus
Equilibrium $4
price Price ceiling
$3 $3
Price Floor
$2 Equilibrium
price
Demand Demand
Wage Wage
Labour
Labour Labour surplus supply
supply
(unemployment)
Minimum
wage
Equilibrium
wage
Labour Labour
demand demand
Price of
Ice-Cream
Cone
S1
Price
buyers
pay
$3.30
Price
Tax ($0.50) Equilibrium without tax
without $3.00
tax A tax on buyers shifts
$2.80 the demand curve
downward by size of
Price the tax ($0.50).
sellers
receive
Equilibrium
with tax
D1
D2
Price of
Ice-Cream
Cone S2
Equilibrium S1
Price
with tax
buyers
A tax on sellers shifts
pay
the supply curve
upward by an amount
of the tax ($0.50).
$3.30
Price
Tax ($0.50) Equilibrium without tax
without $3.00
tax
$2.80
Price
sellers
receive
D1
Wage
Labour
supply
Tax wedge
Wage without tax
Wage workers
receive
Labour
demand
0 Quantity of
Labour
Supply
Tax
Demand
3. than on producers.
Quantity
Supply
Tax
Demand
2. the incidence of the tax falls more
heavily on producers
Price sellers
receive
Quantity