Effective price ceilings or floors prevent normal market equilibrium price.
Taxes, subsidies and production quotas
Quotas limit the quantity that can be produced.
Subsidies
increase the quantity produced, lower prices for buyers and increase seller prices.
Taxes
lead to lower quantities produced, higher prices for buyers and lower effective prices for sellers.
Monopoly
Only one firm can provide a certain good or service. A monopolist will charge a higher price and produce a lower quantity.
External costs and benefits
- Not borne by the person or firm making the economic decision.
- Public goods and common resources
- Common Resources are used potentially by everyone and not owned by anyone. Eg. overfishing and air pollution
- Public Goods are goods available to everyone. For example police protection and public parks.
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