Chapter 6

Chapter 6 talks about how the government controls price and taxes through their policies. These can sometimes have unintended outcomes. A price ceiling is the maximum, by law, on the price of a good. A price floor is the minimum, by law, on the price of a good. A binding price ceiling causes a shortage and the sellers must disperse small amounts of the good to a large number of buyers. A binding price floor causes a surplus. Taxes discourage market activity in that when a good is taxed, the quantity sold is smaller in the new equilibrium. Buyers and sellers both bear the burden of taxes. However, the tax burden is heavier on the side that is less elastic. When a good is taxed, the side with fewer alternative choices has to bear the burden of the tax. An unintended outcome is that the distribution of tax burden is not equal, fifty-fifty, like the policy makers initially wanted. This chapter showed how the laws of supply and demand along with the government laws interacted with each other. Their effects are still greatly debated among policymakers today. I thought this chapter was pretty understandable but I still have a few questions. I would like more of an explanation of the difference between how taxes on sellers affect market outcomes versus how taxes on buyers affect market outcomes. Other than that, I feel this chapter had useful graphs and examples to explain the topics, like how the minimum wage affects teenage labor.