Slides for chapter 6 supply demand and gvt policy 1 prev version

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Slides for chapter 6 supply demand and gvt policy 1 prev version

  1. 1. Text: Principles of Macroeconomics, N. Gregory Mankiw, Sixth Edition. Instructor: Sue Guzek, Kansas State University Salina Music: We Gonna Make You… By Troy “Trombone Shorty” Andrews and Orleans Avenue – Orleans and Claiborne 1
  2. 2. 2 Price adjusts to equilibrium, balancing supply and demand
  3. 3.  Buyers say price is too high 3
  4. 4. 4 +Qty Price 0 $ 1 1 $ 1 2 $ 2 3 $ 2 4 $ 3 5 $ 3 Qty Price 0 $ 1 2 $ 2 4 $ 2 6 $ 3 8 $ 3 Qty Price 0 $ 1 1 $ 1 4 $ 2 7 $ 2 10 $ 3 13 $ 3
  5. 5. 5 If the ceiling is higher than the equilibrium price, it doesn’t matter, but if the ceiling is LOWER than the Equilibrium price…
  6. 6. 6 Price of Ice Cream Cone Quantity Supplied Shortage
  7. 7. 7 Price ceiling is designed to benefit buyers, but not all benefit
  8. 8. 8 See pages 114 and 115
  9. 9. 9 Bob and Cherry (producers) say price is too LOW
  10. 10. 10 Sellers appeal to personal biases of buyers and those with more connections are more successful. This intervention is also seen as undesirable by economists
  11. 11. 11 Q supplied = Workers When production price is forced up by higher price of labor, Quantity demanded is less and Labor Surplus results in unemployment Price
  12. 12. 12 Price Buyers Pay $3.30 Price without tax $3.00 Price sellers receive $2.80 100 Tax on Sellers
  13. 13. 13 Price Buyers Pay $3.30 Price without tax $3.00 Price sellers receive $2.80 100 Tax on Buyers
  14. 14. 14 Price Buyers Pay $3.30 Price without tax $3.00 Price sellers receive $2.80 100 Taxes levied on sellers and taxes on Buyers are equivalent AND reduce the size of the market The only difference is who actually sends the money to the government!
  15. 15. 15 A tax burden falls more heavily on the side of the market which is less elastic When supply is more elastic than demand the tax burden falls more on the consumers Than on producers D
  16. 16. 16 A tax burden falls more heavily on the side of the market which is less elastic When demand is more elastic than supply the tax burden falls more on the Producers Than on Consumers
  17. 17.  Price Ceiling  Price Floor  Tax burden  Tax incidence 17
  18. 18. Principles of Macroeconomics, N. Gregory Mankiw, Sixth Edition: PowerPoint Slides prepared by: Andreea CHIRITESCU, Eastern Illinois University 18

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