Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og...
-
Upload
peter-popejoy -
Category
Documents
-
view
217 -
download
0
Transcript of Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og...
![Page 1: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/1.jpg)
Copyright © 2004 South-Western
66Supply, Demand, and Government Policies (Framboð, eftirspurn
og stefna stjórnvalda)
![Page 2: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/2.jpg)
Copyright © 2004 South-Western/Thomson Learning
Supply, Demand, and Government Policies
• In a free, unregulated (óreglusett) market system, market forces (kraftar markaðarins) establish (leggja grunn að) equilibrium prices and exchange quantities.
• While equilibrium conditions may be efficient, it may be true that not everyone is satisfied.
• One of the roles of economists is to use their theories to assist in the development of policies.
![Page 3: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/3.jpg)
Copyright © 2004 South-Western/Thomson Learning
CONTROLS ON PRICES
• Are usually enacted when policymakers believe the market price is unfair to buyers or sellers.
• Result in government-created price ceilings and floors.
![Page 4: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/4.jpg)
Copyright © 2004 South-Western/Thomson Learning
CONTROLS ON PRICES
• Price Ceiling (verð þak)• A legal maximum on the price at which a good can
be sold.
• Price Floor (verð gólf)• A legal minimum on the price at which a good can
be sold.
![Page 5: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/5.jpg)
Copyright © 2004 South-Western/Thomson Learning
How Price Ceilings Affect Market Outcomes
• Effects of Price Ceilings
• A binding price ceiling creates• shortages because QD > QS.
• Example: Gasoline shortage of the 1970s
![Page 6: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/6.jpg)
Figure 2 The Market for Gasoline with a Price Ceiling
Copyright©2003 Southwestern/Thomson Learning
(b) The Price Ceiling on Gasoline Is Binding
Quantity ofGasoline
0
Price ofGasoline
Demand
S1
S2
Price ceiling
QS
4. . . . resultingin ashortage.
3. . . . the priceceiling becomesbinding . . .
2. . . . but whensupply falls . . .
P2
QD
P1
Q1
![Page 7: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/7.jpg)
Copyright © 2004 South-Western/Thomson Learning
The Minimum Wage
• An important example of a price floor (verðgólf) is the minimum wage (lágmarkslaun). Minimum wage laws dictate (stýra verðir niður í lægsta mögulega verð) the lowest price possible for labor that any employer may pay.
![Page 8: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/8.jpg)
Figure 5 How the Minimum Wage Affects the Labor Market
Copyright©2003 Southwestern/Thomson Learning
Quantity of MagnLabor vinnuafls
WageLaun
0
Labordemand
LaborSupply
Equilibriumemployment
Equilibriumwage
![Page 9: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/9.jpg)
Figure 5 How the Minimum Wage Affects the Labor Market
Copyright©2003 Southwestern/Thomson Learning
Quantity ofLabor
Wage
0
LaborSupply
Labor surplus(unemployment)
Labordemand
Minimumwage
Quantitydemanded
Quantitysupplied
Umframframboð(atvinnuleysi)
![Page 10: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/10.jpg)
Copyright © 2004 South-Western/Thomson Learning
TAXES
• Governments levy taxes (leggja á skatta) to raise revenue for public projects.
![Page 11: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/11.jpg)
Copyright © 2004 South-Western/Thomson Learning
How Taxes on Buyers (and Sellers) Affect Market Outcomes Áhrif skatta á markaðinn
• Taxes discourage market activity.
• When a good is taxed, the quantity sold is smaller.
• Buyers and sellers share the tax burden.
![Page 12: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/12.jpg)
Copyright © 2004 South-Western/Thomson Learning
Elasticity and Tax Incidence
• Tax incidence (dreifing skattbyrðar) is the study of who bears the burden of a tax.
• Taxes result in a change in market equilibrium.
• Buyers pay more and sellers receive less, regardless of whom the tax is levied on.
![Page 13: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/13.jpg)
Figure 6 A Tax on Buyers
Copyright©2003 Southwestern/Thomson Learning
Quantity ofIce-Cream Cones
0
Price ofIce-Cream
Cone
Pricewithout
tax
Pricesellersreceive
Equilibrium without taxTax ($0.50)
Pricebuyers
pay
D1
D2
Supply, S1
A tax on buyersshifts the demandcurve downwardby the size ofthe tax ($0.50).
$3.30
90
Equilibriumwith tax
2.803.00
100
![Page 14: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/14.jpg)
Copyright © 2004 South-Western/Thomson Learning
Elasticity and Tax Incidence
• What was the impact of tax? • Taxes discourage market activity.• When a good is taxed, the quantity sold is smaller. • Buyers and sellers share the tax burden.
![Page 15: Copyright © 2004 South-Western 6 Supply, Demand, and Government Policies (Framboð, eftirspurn og stefna stjórnvalda)](https://reader036.fdocuments.in/reader036/viewer/2022062404/5518ab4b550346c31f8b4ca2/html5/thumbnails/15.jpg)
Figure 7 A Tax on Sellers
Copyright©2003 Southwestern/Thomson Learning
2.80
Quantity ofIce-Cream Cones
0
Price ofIce-Cream
Cone
Pricewithout
tax
Pricesellersreceive
Equilibriumwith tax
Equilibrium without tax
Tax ($0.50)
Pricebuyers
payS1
S2
Demand, D1
A tax on sellersshifts the supplycurve upwardby the amount ofthe tax ($0.50).
3.00
100
$3.30
90