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Unit 6

Word Meaning
price ceiling legal maximum price of a good or service
is binding (effective) if set below equilibrium price, leading to a shortage
price floor legal minimum price of a good or price
is binding (effective) if set above the equilibrium price, leading to a surplus
rax incidence the distribution of a tax burden
the side of the market which is more inelastic (steeper curve) bears a larger burden of the tax

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Determinats of the DWL due to tax

  • price elasticities of demand and supply
  • more elastic one or both of the curves are, the greater the DWL
  • the size of tax
  • the bigger the tax, the bigger the DWL
Last update: October 17, 2021
Created: October 17, 2021