1. CHAPTER 4 The Market strikes back

2. Contents of the Chapter
Price controls
1. Price ceiling
2. Price floor
3. Quantity controls—quota
4. Excise tax
Inefficiency

3. 1. PRICE CEILING: The Market for Apartments in the Absence of Government Controls

4. The Effects of a Price Ceiling

5. Price ceilings often lead to inefficiency in the forms of:
Inefficient allocation to consumers
Wasted resources
Inefficiently low quality
They also produce black markets.

6. 2. PRICE FLOOR: The Market for Butter in the Absence of Government Controls

7. The Effects of a Price Floor

8. Price floors often lead to inefficiency in the forms of:
Inefficient allocation of sales among sellers
Wasted resources
Inefficiently high quality
They can also can provide an incentive for illegal activity (Ex.: black labor).
Note to the instructor: At the end of this slide, asking the question “so, why are there price floors?” and going over the second half of page 93 would be a good idea. Also, talking about “black labor” in Southern Europe would catch the attention of students.

9. 3. QUOTA: The Market for Taxi Rides in the Absence of Government Controls

10. Effect of a Quota on the Market for Taxi Rides

11. 4. EXCISE TAX: Effect of an Excise Tax Levied on the Sales of Taxi Rides

12. Effect of an Excise Tax Levied on Purchases of Taxi Rides

13. Tax INCIDENCE: The Revenue from an Excise Tax

14. Excise Tax: Key Terms Tax revenue Tax incidence Excess burden
Deadweight loss