Week 7 · Module overview

Week 7 — Government Intervention: Price Controls, Taxes & Subsidies

Principles of Microeconomics Free sample edition

Why this matters

A renter under a rent limit, a shift worker under a minimum wage, and a small grocery owner adding a tax to each sale all live with prices a rule set.

In plain language

This week is about what happens when a government steps into a market and changes the price. Sometimes it sets a top price, called a price ceiling (a legal maximum price), and sometimes a bottom price, called a price floor (a legal minimum price). Sometimes it adds a per-unit tax (a fixed amount collected on each unit sold) or pays a per-unit subsidy (a fixed amount paid for each unit sold). Each rule changes how much gets bought and sold, and each one can shrink the total gain from the market. The model tells you who gains, who loses, and how much value disappears; whether a rule is worth it is a separate question about values.

Already covered: Week 4 built the running market, Week 5 measured responsiveness, and Week 6 measured surplus.
This week: ceilings, floors, taxes, subsidies, and deadweight loss.
How they connect: Week 6's triangles measure what each rule costs.
Where we're going next: Week 8 reviews Weeks 1–7 before the midterm.

Focus

When a rule caps, props up, taxes, or pays for a price, who gains, who loses, and what disappears?

By the end of this module, you should be able to:

[ ] say when a ceiling or a floor binds and find its shortage or surplus
[ ] compute a tax's prices, revenue, and deadweight loss
[ ] explain who bears a tax, whoever writes the check
[ ] separate the model's prediction from the debate on its size

To-do

Plan your week

Read Chapter 7 (45–55 minutes), then the lecture and slides.
Work the tutorial (60–90 minutes) and practice set (15–25 minutes).
Do the Model Workshop (90 minutes), discussion, and assignment.
Take the quiz.

This week's checkpoint: find a ceiling's shortage and say who bears a tax.

You've got this

Take it in order, and ask your instructor early.

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