tailieunhanh - Lecture Economics: Chapter 6 - Dean Karlan, Jonathan Morduch

Chapter 6 - Government intervention, in this chapter you will learn: The effect of a price ceiling or a price floor on the equilibrium price and quantity, the effect of a tax or a subsidy on the equilibrium price and quantity, how elasticity and time period influence the impact of a market intervention. | Chapter 6 Government Intervention © 2014 by McGraw‐Hill Education 1 What will you learn in this chapter? • The effect of a price ceiling or a price floor on the equilibrium price and quantity. • The effect of a tax or a subsidy on the equilibrium price and quantity. • How elasticity and time period influence the impact of a market intervention. © 2014 by McGraw‐Hill Education 2 Why Intervene? • Markets gravitate toward equilibrium. • When markets work well, prices adjust until the quantity of the good demanded is equal to the quantity supplied. • There are three reasons why a government may step in and intervene in a market: – Correcting market failures. – Changing the distribution of benefits. – Encouraging or discouraging consumption of certain goods. © 2014 by McGraw‐Hill Education 3 1 Four real‐world interventions • In this chapter, four real‐world examples of government intervention will be analyzed. – Mexican tortilla prices and the government setting a maximum price. – . milk prices and the government setting a minimum price. – . fatty foods and the government taxing high fat and high calorie foods. – Mexican tortilla prices and the government subsidizing tortilla producers. • These examples require both positive and normative analysis. – What are the trade‐offs? – Do the benefits outweigh the costs? © 2014 by McGraw‐Hill Education 4 Price controls • Price controls can be divided into categories: – Price ceiling: A maximum legal price at which a good can be sold. • Typically placed on essential goods and services such as food, gasoline, and electricity. – Price floor: A minimum legal price at which a good can be sold. • Typically placed on agricultural goods that are risky to produce. • .