Effects of Government Interventions: There are two topics here: price ceilings and floors and taxes.  The discussion on price ceilings and floors should be pretty straightforward after discussing equilibrium and why prices above and below market equilibrium are not balanced.  An effective price ceiling or floor essentially creates a persistent disequilibrium with a resulting excess shortage or surplus.  Care should be taken to emphasize that not all price ceilings and floors result in disequilibrium and that it is important to compare the price restriction to the actual market equilibrium to determine whether there will be any effect.

 

The discussion on taxes is less intuitive and often takes work for students to understand.  The key result is that the effect of tax is determined solely by the nature of supply and demand and not by the administrative decision about who should remit the tax to the taxing authority.  Perhaps the most effective way to make this point (and it provides good practice as well) is to work through a numerical example.  It also can be helpful for students to work out and discuss the results of taxes imposed in markets with extreme supply and demand relationships (vertical or horizontal supply and/or demand curves).