Chapter 6

Chapter 6 focuses on how government policies affect the prices and puts a “ceiling” and “floor” on them. For the most part, this chapter was understandable but going over it class would just help to make sure I fully understand the content. A price ceiling in the legal maximum price a good can cost and a price floor is the legal minimum a good can cost. The government creates these with polices and laws, such as rent control and minimum wage, and is meant to help the service be rationed between sellers and buyers, but can result in excess supply or demand. The government also uses taxes to affect the market, causing equilibrium of the quantity to fall and shrink the size of the market. The tax causes a wedge on the price paid and the price received by the buyer and the seller, so the movement of the equilibrium causes the buyers to pay more, but the sellers receive less. In these cases, the buyers and sellers then share a “tax burden” caused by the wedge. On the other hand, the burden usually falls on the less elastic side of the market because it can be less responsive to the tax by changing the quantity bought or sold since those goods tend to be more needed, and not seen as a luxury. The concepts chapter 6 covers seem pretty straight forward but the details can be a bit offsetting. I’m sure with review I’ll better understand the ideas expressed.