Lesson 6

    Cards (25)

    • What is the main focus of this lecture?
      The lecture focuses on government policies.
    • Why do governments intervene in markets?
      To make them work better and to promote fairness.
    • What are the two concepts governments balance when intervening in markets?
      Efficiency and equity (fairness).
    • What is the purpose of price controls?
      To keep prices low or high in the market.
    • What is the role of indirect taxes in government policy?
      To raise revenue that can be redistributed.
    • What can happen if the basic economics is not understood?
      There can be unintended consequences from government interventions.
    • What are the main topics covered in today's lecture?
      The effects of price controls and indirect taxes.
    • What are the effects of a price ceiling?
      • Prevents the price from rising above a certain level
      • Causes excess demand if binding
      • Has no effect if above equilibrium price
    • What is a price ceiling?
      A maximum price set by the government that prevents prices from rising above a certain level.
    • What happens when a binding price ceiling is imposed?
      It lowers the market price and causes excess demand.
    • What is the current situation regarding renting a home in London?
      Renting a home in London is very expensive.
    • What is likely to happen if the UK government imposes rent controls?
      The problem of excess demand is likely to increase in the long run.
    • What can the government do to influence supply and demand in housing?
      They can try to build new houses to increase supply.
    • What are the effects of a price floor?
      • Prevents the price from falling below a certain level
      • Causes excess supply if binding
      • Has no effect if below equilibrium price
    • What is a price floor?
      A minimum price set by the government that prevents prices from falling below a certain level.
    • What happens when a binding price floor is imposed?
      It raises the market price and causes excess supply.
    • What is the purpose of minimum wage legislation?
      To ensure people receive reasonable incomes.
    • How does minimum wage affect high-skilled workers?
      Minimum wage has no effect on the wage of high-skilled workers.
    • What factors determine the extent of unemployment due to minimum wage?
      The elasticity of demand and supply.
    • What are the effects of imposing taxes on goods?
      • Specific tax: a fixed amount per unit sold
      • Ad valorem tax: a percentage of the price
      • Decreases supply and raises equilibrium price
    • What is the incidence of tax?
      The distribution of tax burden on buyers and sellers.
    • How does the elasticity of demand and supply affect tax incidence?
      When demand is more inelastic than supply, a higher burden falls on the buyers.
    • What was the goal of the luxury tax adopted by the US government in 1990?
      To raise tax revenues from the wealthiest in society.
    • What was the effect of the luxury tax on yacht builders?
      The incidence of the tax was paid by the less wealthy yacht builders.
    • What are the key takeaways regarding price controls and taxes?
      • Price ceilings prevent prices from being too high but cause excess demand.
      • Price floors prevent prices from being too low but cause excess supply.
      • Indirect taxes decrease supply and raise the equilibrium price of goods.
      • Tax incidence depends on the price elasticity of demand.
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