Economic Quick Tip: Principles of how Government affects Supply and Demand

Government can regulate our markets through price ceilings (placing a maximum price limit) or price floors (placing a minimum price limit). Price ceilings can result into excess demand while price floors can result into excess supply. Governments can also impose taxes to suppliers which reduces supply, or to consumers which reduces demand (the inverse applies if government issues subsidies or tax benefits). Price ceilings will reduce prices while decreasing the quantity supply at the limit. Price floors will increase prices while decreasing the demand at the limit. Taxes would decrease the traded quantities in the market.