Micro 2/9

First Exam next week— just need a pencil
General Fixes
the ones that do not work so well
-Price floor: minimum price (minimum wage); goal: help poor; affect: increase unemployment, less jobs; not be binding if minimum wage is less than wage equilibrium (doesn’t mean anything)
-Price ceiling: maximum price (rent control); goal: make item affordable; affect: shortage, worse quality
the ones that work better
Excise tax: per unit tax; (ex. tariff: tax on imports)
Quota: maximum quantity (gets no tax money)
Externality fixes (or tries)
1. taxes (punishing bad, like cigs)
2. subsidy: opposite of a tax (usually reward for good)
3. do nothing (economy will help itself)


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