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This chapter is about what happens when government tries to override the prices that supply and demand would otherwise produce. There are essentially four ways to do this: cap the price (a price ceiling, like rent control), set a floor below which...

Learning Objectives

  • Draw a price ceiling and a price floor on a supply-and-demand diagram and identify the resulting shortage or surplus.
  • Explain why most economists oppose rent control as written but voters often support it — and evaluate both perspectives.
  • Calculate tax incidence and explain why who pays the tax depends on elasticity, not on who writes the check.
  • Define deadweight loss and explain why it's a measure of inefficiency, not a measure of how bad a policy is.

In This Chapter

Chapter 7 — Government Intervention

Price Controls, Taxes, and Subsidies

This chapter is about what happens when government tries to override the prices that supply and demand would otherwise produce. There are essentially four ways to do this: cap the price (a price ceiling, like rent control), set a floor below which the price cannot fall (a price floor, like the minimum wage), tax the transaction (raising the effective price for buyers and lowering it for sellers), or subsidize the transaction (lowering the effective price for buyers and raising it for sellers). Each of these is used by some governments, somewhere, for some purpose. Each has predictable economic consequences. Each is also genuinely controversial — sometimes for good reasons.

The chapter is going to do something unusual for an introductory economics textbook. It is going to take the controversies seriously. The standard textbook treatment of rent control says: "Economists are basically unanimous that rent control is bad. Here's why. Moving on." That treatment is not exactly wrong — there is a strong professional consensus against rent control as it has typically been implemented. But it leaves out the part of the story that explains why millions of voters keep supporting rent control anyway, despite the supposedly devastating economic critique. Voters are not stupid. Voters are not ignorant. Voters are responding to something real about their lives. The question is: what?

By the end of this chapter, you should understand the standard supply-and-demand analysis of price controls and taxes (which is basically settled and which you need to know). You should also understand why intelligent people sometimes disagree with the standard analysis — and where the disagreement comes from. The combination is more useful than either half alone, and it is one of the things this textbook is trying to do that other textbooks do not.

The chapter has six sections. Section 1 covers price ceilings and rent control, including the Millbrook proposal. Section 2 covers price floors and the minimum wage in depth. Section 3 covers tax incidence and the elasticity rule. Section 4 covers subsidies. Section 5 covers deadweight loss as a way of measuring inefficiency. Section 6 closes with a synthesis on what economic analysis can and cannot tell you about these policies.

7.1 Price ceilings: rent control in Millbrook (and everywhere)

The Walden County Council met on March 14, 2025 to discuss a proposal that had been making the local news for months. A coalition of MSU students, a tenant advocacy group called Millbrook Tenants United, and several Democratic council members had introduced an ordinance that would cap rent increases on existing leases at 3% per year and cap rents on new leases for one-bedroom apartments within walking distance of MSU at $1,250 per month — a number that was about $150 below the prevailing market rate at the time of the proposal.

The proposal was popular. A poll the Millbrook Daily-Sentinel had run two weeks earlier showed 64% support among MSU students, 51% support among non-student Millbrook residents, and 38% support among landlords. (The landlords were not delighted but a substantial minority, particularly those with paid-off properties and stable tenants, did not see the cap as a personal threat.) The council chamber was packed for the meeting. Three economists had been invited to speak — two from MSU's economics department and one from a regional think tank. All three opposed the ordinance. All three were respectful and serious about it. None of them changed many minds.

The council was going to vote in two weeks. To understand what was about to happen, we need the supply-and-demand analysis of price ceilings.

What a price ceiling does to a market

A price ceiling is a legal maximum on the price of a good. If the ceiling is set above the equilibrium price, it doesn't bind — the market reaches the equilibrium normally and the ceiling is irrelevant. If the ceiling is set below the equilibrium price, it binds, and the market cannot reach the price-quantity pair where supply meets demand.

Let's draw the picture for the Millbrook proposal.

                Price Ceiling on 1BR Apartments in Millbrook
   Price
   ($/month)
    $1800 |  D \                              S /
          |     \                           /
    $1600 |      \                       /
          |       \                   /
    $1400 |        \   ★ EQUILIBRIUM /
          |         \      ★      /
          |          \      ★    /
    $1300 |           \      ★ /
          |            \     /
    $1250 |═══════════════════════════════ ← PRICE CEILING (binding)
          |            /\
          |           /  \
    $1200 |         /     \
          |        /        \
    $1000 |      /            \
          |    /                \
    $ 800 |  /                    \
          |________________________________
          0    Qs       Q*       Qd          Quantity
                ↑        ↑        ↑
              Quantity   Equilib  Quantity
              supplied   quantity demanded
              at $1250             at $1250
                ←── SHORTAGE ──→

Figure 7.1 — A binding price ceiling. The ceiling at $1,250 sits below the equilibrium price ($1,400). At the ceiling price, the quantity demanded (Qd) exceeds the quantity supplied (Qs). The gap is the shortage. Without the ceiling, prices would rise to $1,400 and the market would clear; with the ceiling, prices cannot rise, and the shortage persists.

What does this picture tell us?

1. There is a shortage. At $1,250/month, more students want apartments than landlords are willing to rent out. The number of apartments that get rented is *not* the demand at $1,250 (which would be a fantasy — landlords aren't willing to provide that many). It is the supply at $1,250, which is less than the equilibrium quantity. So the price ceiling actually reduces the number of rented apartments, not increases it. This is the most counterintuitive result for non-economists: a policy designed to make housing more available makes less housing available.

2. Some renters benefit; some are hurt. The renters who get one of the (smaller number of) available apartments at $1,250 are clearly better off than they would have been at $1,400. They save $150/month. But the renters who don't get apartments are hurt: they wanted to rent at the equilibrium price and can't find anything to rent. The ceiling helps the lucky and hurts the unlucky.

3. Landlords are unambiguously hurt. They sell fewer units at lower prices. Their total revenue from this market falls. Some of them — the marginal sellers, the ones who would have entered the market if prices were higher but who don't bother at $1,250 — exit entirely.

4. In the long run, supply gets even worse. The simple analysis above is the short run. In the long run, two additional things happen. First, some landlords convert their rental properties to other uses — selling to single-family home buyers, converting to condos, demolishing units that aren't economical to maintain at the capped rent. This shifts the long-run supply curve further left. Second, no one builds new rental housing in the controlled market, because the controlled rents won't cover construction and operating costs. New supply that would otherwise have come online over the next 5–10 years simply doesn't appear. The shortage grows over time.

5. Quality may decline. When landlords cannot raise rents, they have less incentive (and less ability) to maintain or improve their units. Over years, the housing stock under rent control tends to deteriorate — peeling paint, broken appliances, slow repairs. Some of this is observable in real-world rent-controlled markets like New York City and parts of San Francisco.

6. Search costs and waiting lists rise. When demand exceeds supply at a given price, the market has to allocate the available units somehow. Without prices doing the work, allocation happens through other mechanisms: waiting lists, who-knows-whom, landlord preferences (which can include illegal forms of discrimination), and pure luck. Hours spent searching for an apartment become a real cost that doesn't show up in the rent.

This is the standard economic critique of rent control. It is well-established, well-supported by empirical evidence (we'll cite some studies in §7.6), and it is the consensus view among economists. The IGM Forum poll on rent control from 2012 found that ~95% of surveyed economists agreed that "local ordinances that limit rent increases for some rental housing units... have had a negative impact on the amount and quality of broadly affordable rental housing in cities that have used them." This is roughly as strong a consensus as economics produces on any policy question.

Why do voters support it anyway?

So why is rent control popular? Why do millions of voters in cities across the U.S. — and around the world — keep voting for policies their economists tell them are bad?

The honest answer is not that voters are stupid or ignorant. The honest answer is that the economists' framing is correct on its terms but misses some things voters are responding to.

What voters are responding to:

1. The actual rent bill. Most voters are renters experiencing a specific concrete problem: their rent went up, and they cannot afford it. The economist's argument — "but if you cap rents, the supply will eventually shrink" — is a hypothetical about a future they cannot see. The rent bill is real and present. The future shortage is abstract. Behavioral economics tells us that present concerns beat distant abstractions almost every time.

2. The bargaining-power asymmetry. A single tenant negotiating with a landlord over a lease has very little leverage. The landlord owns the property and can rent it to someone else; the tenant needs a place to live and cannot easily leave town. The supply-and-demand model treats both sides as price-takers, but in real life the landlord has structural advantages that the model abstracts away. Voters who notice this — and they do notice — are responding to a real feature of the rental market that the standard model understates.

3. Stability and security. Rent control isn't just about price. It's about predictability — knowing that next year your rent won't suddenly jump 20% and force you to move, change schools for your kids, leave your community. The economic literature on the "value of stability" is small but growing. People genuinely value not having to make life-altering decisions every year. Rent control delivers that stability for the lucky tenants who get it.

4. The distributional question. When rents rise, the people who bear the cost are renters (who tend to be poorer on average) and the people who collect the gains are landlords (who tend to be richer on average). Free-market rents transfer wealth from poorer to richer households. Rent control reverses some of that transfer. Voters who care about distribution — about fairness in addition to efficiency — see this clearly. The economist's argument that "the long-run housing supply will shrink" is a critique on efficiency grounds; it does not directly address the distributional concern that motivates many supporters.

5. The empirical record is mixed. The most-cited critique of rent control is Diamond, McQuade, and Qian's 2019 study of San Francisco, which found that rent control did reduce the supply of rental housing over time and concentrated benefits among a smaller group of long-term tenants. This is genuine evidence that the standard critique is empirically correct in important ways. But there is also evidence that rent control's negative effects vary depending on how the policy is designed — strict 1970s-style controls (like New York's old rent control) had worse effects than newer "rent stabilization" policies (which allow controlled increases tied to inflation). Berlin's 2020 rent freeze, struck down by Germany's constitutional court, was a particularly aggressive example. Less aggressive policies have less aggressive negative effects.

So the honest framing for the Millbrook council is something like this: Rent control will probably reduce the long-run supply of housing in Millbrook. It will probably create a shortage. It will probably benefit a small number of long-term tenants and hurt some prospective new tenants who can't find apartments. Whether the benefits outweigh the costs depends on how much you weight the immediate stability for current tenants against the long-run damage to future tenants — and on how the specific policy is designed.

This is a much more useful framing than "economists oppose rent control." It tells the council what the trade-offs actually are and what the design choices matter most.

Better alternatives

Most economists who oppose rent control as a policy choice are not opposed to the goal of housing affordability. They are opposed to a specific tool that has predictable negative consequences. The same goal can usually be achieved better through other tools:

  • Increase supply. Reform zoning to allow more apartments to be built. Speed up permitting. Reduce parking minimums. Allow accessory dwelling units. This addresses the underlying problem (too few homes) rather than masking it with a price cap. The downside: it takes years to take effect, and some current residents (often homeowners who benefit from current scarcity) oppose it. We will see this in much more depth in Chapter 36.

  • Direct subsidies for low-income tenants. Housing vouchers (like Section 8) or direct rent assistance go directly to the people the policy is supposed to help, without distorting the market price. Tenants can choose where to live; landlords get the market rent; no shortage develops. The downside: it costs taxpayer money, and the budget for housing assistance is rarely large enough.

  • Rent stabilization with explicit phase-out. Allow controlled rent increases (say, inflation + 2%) on existing tenancies, and free-market rents on vacancies. This protects current tenants from sudden jumps while allowing the market to adjust over time. Many U.S. cities have this hybrid model, and the empirical record is meaningfully better than strict rent control.

The Walden County Council voted on the rent control ordinance two weeks after the meeting described above. They voted it down, 5–4, but only after extensive debate about the alternatives. The council did, in the same session, pass a smaller ordinance creating a $200,000 emergency rental assistance fund, and they began a year-long review of the city's zoning code. Both of those moves are more aligned with what the consensus of the economic literature would recommend. Whether they will be enough is a question the city will face for years.

7.2 Price floors: the minimum wage, in depth

Now let's flip the picture. A price floor is a legal minimum on the price of a good. If the floor is set below the equilibrium price, it doesn't bind. If it's set above the equilibrium, it binds, and the market cannot reach the price where supply meets demand.

The most consequential price floor in the U.S. economy is the minimum wage on labor. We previewed it in Chapter 6 (where the elasticity of labor demand was the key variable). Now let's give it the full treatment.

The basic supply-and-demand picture

                Price Floor: Minimum Wage Above Equilibrium
   Wage
   ($/hour)
   $20  | (Demand for         (Supply of
        |  labor)              labor)
   $18  |    \                /
        |     \             /
   $16  |      \           /
        |        \        /
   $15  |═════════════════════════ ← MINIMUM WAGE (binding)
        |           \    /
        |          ★ \  /                         ← UNEMPLOYMENT
   $13  |             \/                            (surplus of labor)
        |             ★★                  surplus
        |            /  \           ←─────────→
   $11  |          /     \
        |         /        \
   $ 9  |       /            \
        |      /               \
   $ 7  |    /                   \
        |________________________________
        0    Qd       Q*       Qs           Quantity (hours of labor)
              ↑        ↑        ↑
            Hours    Equilib   Hours
            firms    quantity  workers
            want at  of labor  want at
            $15               $15
              ←── SURPLUS ──→
              (UNEMPLOYMENT)

Figure 7.2 — A binding minimum wage. The minimum wage at $15 sits above the equilibrium wage of $13. At the minimum wage, the quantity of labor supplied (workers willing to work at $15) exceeds the quantity demanded (jobs firms want to fill at $15). The gap is unemployment. Without the minimum wage, the market would clear at $13. With the minimum wage, some workers who want jobs cannot find them.

The simple model says: a minimum wage above the equilibrium wage causes unemployment. The size of the effect depends on the elasticity of labor demand (Chapter 6). The harder question is: what does empirical evidence say about how big the effect actually is?

What the empirical literature has shown

We covered some of this in Chapter 6's case study, but it bears repeating because the minimum wage is the single most-debated policy in microeconomics.

The pre-Card-Krueger consensus (before 1994). The standard view among economists was that minimum wage increases caused meaningful job losses. The implied elasticity of labor demand was something like −1 (a 10% wage increase causes roughly a 10% reduction in employment). Minimum wages were widely seen as a well-intentioned but counterproductive policy.

Card and Krueger (1994). David Card and Alan Krueger studied fast-food employment in New Jersey and Pennsylvania around a New Jersey minimum wage increase. Their finding: no significant negative employment effect. Implied elasticity: roughly zero. This was a major shock to the field.

The replication wars (1995–2010). Neumark and Wascher and others tried to replicate Card and Krueger and found different results — sometimes small negative effects, sometimes effects similar to Card-Krueger. The methodological debate became technical and protracted.

Dube, Lester, and Reich (2010). Using a novel border-county design (comparing employment in counties on either side of state lines with different minimum wages), Dube and colleagues found small or zero employment effects, broadly consistent with Card and Krueger.

More recent work. Studies of minimum wage increases in Seattle (the Seattle Minimum Wage Study), in Berkeley, in New York, and in various European countries have continued to find generally small employment effects from moderate minimum wage increases. The CBO's 2019 and 2021 analyses estimated that a $15 federal minimum wage would cause employment to fall by about 1.3 to 3.7 million workers (out of about 17 million who would see wage increases). Implied elasticity: roughly −0.1 to −0.2. The CBO also estimated that roughly 27 million workers would see wage increases.

The honest current state. Most labor economists now believe that moderate minimum wage increases (say, from $7.25 to $12 or $15 in markets where the median wage is well above $15) have small employment effects — small enough that the wage gains for workers who keep their jobs significantly outweigh the wage losses for workers who lose them. Most labor economists are more cautious about very large minimum wage increases (say, $20 or above), because the elasticity may rise as the wage floor gets further from the market equilibrium. The IGM Forum's surveys reflect this nuanced position: more support for $9 or $12 federal minimum wage, more division on $15, more skepticism of $20 or above.

Why is the elasticity smaller than the simple model predicts?

We listed the explanations in Chapter 6. They are worth restating:

  1. Monopsony power. Many low-wage labor markets are not perfectly competitive. When employers have wage-setting power, the standard prediction reverses for moderate minimum wage increases — the minimum wage actually pushes the market closer to a competitive outcome.

  2. Productivity adjustments. Firms facing higher wages can sometimes get more productivity from workers (less turnover, more training, better selection).

  3. Price pass-through. Firms can pass some of the wage increase onto consumers, reducing the impact on employment.

  4. Search frictions. Labor markets adjust slowly. Both firms and workers face significant costs of switching, so the immediate adjustment to a wage change is small.

Each of these mechanisms is supported by some empirical evidence. None is the whole story. Together, they explain why the simple supply-and-demand prediction overstates the employment effect.

What the minimum wage is and isn't good at

The honest framing of the minimum wage as a policy:

  • It does raise wages for workers who keep their jobs. This effect is large and is the main reason supporters favor it.
  • It probably causes some employment loss, but the loss is smaller than the wage gain for most realistic minimum wage increases.
  • It does not eliminate poverty. Many people in poverty are not in the labor force at all — they're elderly, disabled, full-time caregivers, or unemployed for reasons that have nothing to do with wage levels. Minimum wages help working poor people but don't reach non-working poor people.
  • It interacts with other policies. The Earned Income Tax Credit (EITC) is another tool that raises incomes for low-wage workers, and it does so in a way that doesn't risk job losses (it's a wage subsidy from the government, not a price floor). Many economists prefer the EITC as a primary anti-poverty tool, with the minimum wage as a complement.
  • It is politically and culturally important. A higher minimum wage is a statement about what society thinks low-wage workers are worth. The symbolic and dignity components of the policy matter to many supporters in ways that pure economic analysis doesn't capture.

The synthesis: the minimum wage is a useful but limited tool. It is not the disaster the pre-Card-Krueger view predicted, and it is not the panacea its strongest supporters claim. It is a policy with real benefits, real costs, and a research literature that has converged on a roughly defensible middle position over the last thirty years. Reasonable people can support or oppose specific minimum wage proposals based on how they weight the trade-offs. We will revisit this in Chapter 21 with much more detail on the labor market itself.

7.3 Tax incidence: who actually pays?

The third tool of government intervention is the tax. When the government imposes a tax on a good, it raises the price buyers pay above the price sellers receive — the difference is the tax. The question that makes economic analysis useful is: who actually pays the tax?

The intuitive answer — "whoever the law says has to pay it" — is almost always wrong. The economic answer is the tax incidence rule: the more inelastic side of the market bears more of the burden.

The graphical view

Imagine a $2/unit tax on a good. Before the tax, the market is in equilibrium at price P* and quantity Q*. After the tax, the supply curve shifts up by $2 (because at any quantity, sellers must now charge $2 more to cover the tax). The new equilibrium price (the price buyers pay) is higher than P; the quantity sold is lower than Q. The price sellers actually receive (the new market price minus the tax) is lower than P*.

Both sides — buyers and sellers — are worse off. Buyers pay more. Sellers receive less. The wedge between what buyers pay and what sellers receive is the tax. The government collects revenue equal to the tax times the new (lower) quantity.

How much of the $2 tax is borne by buyers and how much by sellers depends on the relative elasticities.

  • If demand is more inelastic than supply, buyers bear more of the burden. Why? Because buyers can't easily reduce their purchases in response to higher prices, so sellers can pass most of the tax through as a higher price.
  • If supply is more inelastic than demand, sellers bear more of the burden. Why? Because sellers can't easily reduce production, so they have to absorb most of the tax themselves.

A worked example

Suppose the federal government imposes a $1/pack tax on cigarettes. Demand for cigarettes is highly inelastic (addiction). Supply is fairly elastic (cigarette manufacturers can produce more or less without much cost adjustment).

Before the tax: price = $7, quantity = 100 packs. After the tax: the supply curve shifts up by $1.

New equilibrium: price (paid by buyers) = $7.85; quantity = 99 packs; price received by sellers = $6.85.

Notice: the buyer's price went up by $0.85 (from $7 to $7.85), and the seller's price went down by $0.15 (from $7 to $6.85). The total of the two changes equals the $1 tax. The buyer bears 85% of the tax; the seller bears 15%. This is consistent with cigarettes being highly inelastic on the demand side — buyers have nowhere else to go, so they absorb most of the tax.

Now consider the opposite case: the 1991 U.S. luxury tax. The federal government imposed a 10% surcharge on luxury yachts (and a few other luxury items) to "make the rich pay." The empirical result was that demand for luxury yachts was much more elastic than expected — wealthy buyers either bought yachts overseas to avoid the U.S. tax or simply bought fewer yachts. Supply was relatively inelastic (specialized U.S. boatbuilders, hard to redirect quickly). The result was that the tax fell mostly on yacht manufacturers, not on wealthy yacht buyers. Yacht manufacturers laid off workers; some went out of business. The tax raised much less revenue than expected and hurt the people it was supposed to help (workers in yacht-building communities). The tax was repealed in 1993.

The lesson is general: legal incidence (who writes the check) and economic incidence (who actually pays) are different things, and the difference is determined by the relative elasticities. Politicians who try to design taxes to "soak the rich" or "go easy on the poor" often miss this and end up with policies whose economic incidence is the opposite of their intent.

7.4 Subsidies: the mirror image

A subsidy is a tax in reverse — instead of raising the price for buyers and lowering it for sellers, it lowers the price for buyers and raises it for sellers. The two parties are paid by the government to do something the government wants to encourage.

The graphical analysis is the mirror image of a tax. The supply curve shifts down by the subsidy amount (because sellers can now afford to charge less and still receive the same revenue, since the government makes up the difference). The new equilibrium has a lower buyer's price, a higher seller's price, and a higher equilibrium quantity. The government's expenditure equals the subsidy times the (now larger) quantity sold.

Like taxes, subsidies have an incidence question. The more inelastic side of the market captures more of the benefit. If demand is highly inelastic (drug consumers, parents buying baby formula), the buyer captures most of the subsidy as a lower price. If supply is highly inelastic (specialized producers, fixed land), the seller captures most of the subsidy as a higher price. This explains some persistent puzzles in agricultural subsidies, housing subsidies, and education subsidies — the intended beneficiaries are often not the ones who actually capture the subsidy money.

The most famous example: federal student loan policy. The federal government has subsidized student loans for decades to make college more affordable. But the supply of higher education is fairly inelastic in the short run (universities can't easily expand), so a substantial portion of the subsidy has been captured by colleges in the form of higher tuition rather than by students in the form of lower net costs. This is the Bennett hypothesis (named after former Education Secretary William Bennett), and the empirical evidence is mixed but suggestive. We will return to it in Chapter 36.

7.5 Deadweight loss: measuring inefficiency

Every binding price control, tax, and subsidy creates deadweight loss — value that exists in the market without the intervention but disappears when the intervention is in place. Deadweight loss is the area between the demand and supply curves over the range of quantity that the intervention has eliminated.

Graphically, it's a triangle. In the case of a tax, it's the triangle bounded by the demand curve (above), the supply curve (below), and the gap between the new and old quantities (on the side). The triangle represents the trades that would have happened without the tax but don't happen with it. Both the buyer and the seller would have benefited from those trades; with the tax, neither does. The value is destroyed.

The deadweight loss from a price control (ceiling or floor) is similar — it's the value of trades that don't happen because the price is fixed at the wrong level.

The size of the deadweight loss depends on elasticity. Inelastic markets have small deadweight losses; elastic markets have large ones. This is why economists tend to recommend taxes on inelastic goods (cigarettes, alcohol, gasoline) when revenue is needed — the deadweight loss is smaller.

Important caveat. Deadweight loss is a measure of inefficiency, not a measure of how bad a policy is. A policy can have substantial deadweight loss and still be a good idea — for example, a carbon tax has deadweight loss in the carbon-emitting industry but produces benefits (reduced emissions) that more than compensate. A policy can have zero deadweight loss and still be a bad idea — for example, a lump-sum tax on the poor has no behavioral distortion (no deadweight loss in the technical sense) but is regressive and unjust. The concept of deadweight loss is useful for comparing the efficiency cost of different policies, but efficiency is not the only thing that matters.

7.6 What this chapter could not teach you

The honest framing of this chapter is that it gave you the standard economic critique of price controls, the elasticity-based incidence analysis of taxes, and the deadweight loss framework. These are the tools every economics graduate should have. They are real, they are useful, and they point toward genuinely important conclusions about how government interventions in markets work.

What the chapter did not give you is a definitive answer to whether any specific policy is "right." The right answer in any specific case depends on:

  • The specific policy design — strict rent control versus rent stabilization, $9 minimum wage versus $20, broad-based income tax versus narrow excise tax
  • The specific market context — competitive versus monopsonistic, elastic versus inelastic, well-functioning versus failing
  • The specific time horizon — short-run effects versus long-run effects can be very different
  • The specific values you bring to the question — efficiency, equity, stability, dignity, freedom can be weighted differently

The most useful thing this textbook can teach you is how to ask the question carefully. Once you can identify the relevant elasticities, the relevant time horizon, the relevant alternative policies, and the relevant values, you can have an informed disagreement with people who weight things differently. That is what mature political and economic discussion looks like. It is what most political and economic discussion isn't. Be the exception.

Key terms recap: price ceiling — a legal maximum on the price of a good (binding when below equilibrium) price floor — a legal minimum on the price of a good (binding when above equilibrium) shortage — quantity demanded exceeds quantity supplied (caused by binding ceiling) surplus — quantity supplied exceeds quantity demanded (caused by binding floor) tax incidence — who actually pays a tax (depends on relative elasticities) statutory incidence — who legally pays a tax economic incidence — who actually bears the burden subsidy — government payment to producers or consumers deadweight loss — value of trades that don't happen because of an intervention Bennett hypothesis — the claim that subsidies for higher education are partly captured by colleges as higher tuition

Themes touched: Markets power+imperfect, Tradeoffs (efficiency vs. equity), Disagreement (rent control consensus, minimum wage debate), Behavioral lens (why voters support what economists oppose), Affects daily life.