Chapter 6

Chapter 6's focus on governement policies helped show how effective/ineffective they are, depending on the viewpoint. Two ideas taken into account, price ceilings and price floors, show how the market responds to such intrusive policies of the free market that would otherwise even out over time. With a price ceiling, it can either have no effect by being not binding, have a small/intended effect for the short run, or be disastrous due to being elastic as time goes on. The example given of there being only a certain amount of rooms being able to rent, while effective at first because of current inelasticity, it will cause huge shortages that affect consumers negatively by creating the need to bribe landlords to rent a room they shouldn't, causing it to slowly shift back to the equilibrium price in a way it shouldn't. Price floors can either have no effect, or cause surplus in the quantity of the good that cause sellers to not be able to sell everything they have. The other focus throughout the chapter is on taxes and how they affect consumers and market outcomes. If it's a tax on the good, demand curve shifts to the left due to the added price on it thats consumers would have to pay. But if the tax is levied onto the seller instead, the supply curve would shift that causes less quantity and a higher price, with the equilibrium point shifting based on how much the tax is.