Exam 5: Using Supply and Demand

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The imposition of an effective price floor (P_F) will result in a price that is higher than the market equilibrium price (P_F < P_E) and will also cause a surplus (Q_S > Q_D).
The diagram:

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By setting a top ticket price at a level below the market-clearing price, the Grateful Dead guaranteed that there would be an excess demand for their concert tickets.This is illustrated in the diagram below.The official price (P_O) effectively sets a ceiling on the price that is below the market-clearing price.At this official price, there is an excess demand for tickets (Q_D > Q_S).The supply curve for tickets was vertical, since for any given show there were only so many seats available.

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Excise taxes are taxes levied on a specific good.Examples include the tax on cigarettes, the tax on alcohol, and the tax on gasoline.A tariff is an excise tax on an imported good.
If an excise tax were levied on apples, the supply curve of apples would shift upward by the amount of the excise tax.The new supply curve of apples would lie parallel to the old one and would lie above it by an amount equal to the excise tax.The new supply curve would intersect the demand curve at a higher price and at a lower quantity.(Apples would cost more, but fewer apples would be sold.) The equilibrium price would rise by less than the full amount of the tax because, at a lower quantity, the cost of production per additional apple would be lower.We would move down along the supply curve thus partially offsetting the effect of the upward shift in the supply curve that was caused by the newly imposed excise tax.