Chapter 6

Chapter six dealt was a fairly easy chapter that did not take a whole lot of thought to decipher. The chapter dealt with ways in which the government interferes with the natural flow of the economy and the various techniques the government employs to get what it wants. The two main tools of the government discussed in the chapter were limits, either through price ceilings or price floors, and taxes. All three mess with the natural equilibrium price of goods and costs efficiency in the name of equity. Price floors are minimum prices for goods set by the gov and this results in an apparent shift in demand because of the suddenly higher required prices and producers as a result produce more goods to try to meet that apparent demand but they end up with a surplus of goods because consumers never asked for more supply in the first place, it was the government that made it seem that way. Price floors are usually set to be fair to the producers of the raw materials used in production, not the seller or the buyer. Price ceilings on the other hand cause prices of goods to go down and as a result the demand for those goods goes up, but producers are making less money and often times cannot produce those goods as cheaply as before the price ceiling and there is therefore a shortage of goods. Taxes are the largest source of revenue for the government and used in a number of goods but in items like cigarettes, they are also used as a weapon, somewhat ineffectively too.