ECO 1104 Chapter Notes - Chapter 6: Ice Cream Cone, Price Ceiling, Price Floor
3363410481 and 38221 others unlocked
16
ECO 1104 Full Course Notes
Verified Note
16 documents
Document Summary
Price ceiling: a legal maximum on the price at which a good can be sold. Price ceiling ex: imposing a price ceiling on the market for ice cream. Market price = price ceiling = upward pressure. At the price ceiling, the quantity of ice cream demanded exceeds the quantity supplied and there is a shortage of ice cream. When the government imposes a binding price ceiling on a competitive market, a shortage of the good arises and sellers must ration the scarce goods among the large number of potential buyers. Price floor: a legal minimum on the price at which a good can be sold. Price floor ex: imposed price floor on ice cream. Market price = price floor = downward pressure. At the price floor, the quantity of ice cream supplies exceeds the quantity demanded and there is a surplus of ice cream.