After studying chapter 6, you MUST be able to

State the effect of imposing effective price ceiling and price floor on the equilibrium price and quantity ; and sketch the corresponding diagrams

State the effect of imposing effective quota on the equilibrium price and quantity ; and sketch the corresponding diagrams

State the quality change associated with the imposition of quota

State the effect of tax on the equilibrium price and quantity and sketch the diagram

Indicate the distribution of tax burden on the diagram

Decide who will bear a larger tax burden

State the effect of subsidy on the equilibrium price and quantity and sketch the diagram

Indicate the distribution of subsidy on the diagram

Decide who will receive more subsidy

 

Note

-If Q_s ?Q_d , Q_t = min { Q_s , Q_d }

-Effect of a per unit tax

-With the per unit tax

-The production cost will increase

-Supply will decrease

-Supply curve will shift to the left

-Equilibrium price will increase and equilibrium quantity will decrease

-Effect of a per unit subsidy

-With the per unit subsidy

-The production cost will decrease

-Supply will increase

-Supply curve will shift to the right

-Equilibrium price will decrease and equilibrium quantity will increase