AP Economics Chapter 6-7

The legislated maximum of price

The legislated minimum of price

Binding- when the price ceiling or price floor has effect on the market
not binding-when the price ceiling or price floor has no effect on the market

A shortage of the good arises, and sellers must ration the scarce goods among the large number of potential buyers.

1.long lines waste buyers' time
2.Discrimination according to seller bias(the good does not necessarily go to the buyer who values it most highly)

Places a ceiling on rents that landlords may charge their tenants.

Binding price ceiling causes shortage
binding price floor causes surplus

1.supply decreases because landlords are less willing to offer more apartments or maintain the existing ones
2.demand increases because low rents encourage more people to find their own apartment
3. Shortage occurs, number of people without apartment increases
4. conditions of apartments deteriorate

Laws dictate the lowest price for labor that any employer may pay

Highly skilled and experienced workers are not affected because their equilibrium wages are well above the minimum.(It is not binding for them)
It has its greatest impact on the market for teenage labor and least-experienced workers.

1.Company hires less workers
2. Encourage teenagers to drop out of school
3. Prevent some unskilled workers from getting the on-the-job training they need
Thus causes high unemployment

Positive:Won't hurt those they are trying to help in long term.
Negative: Cost the government money, therefore, require higher taxes.

Tax incidence

The difference between the price buyers paid and the price sellers receive

A tax burden falls more heavily on the side of the market that is less elastic(more vertical)