EC120 Chapter Notes - Chapter 6: Ice Cream Cone, Tax Incidence, Unemployment Benefits
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EC120 Full Course Notes
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Ec120: chapter 6 supply, demand, and government policies. Price ceiling: legal maximum on the price at which a good can be sold. Price floor: legal minimum on the price at which a good can be sold. How price ceilings affect market outcomes: if the gov. imposes a price ceiling that"s equilibrium price, the price that balances demand is below the ceiling = price ceiling is. Forces of supply and demand tend to move the price toward the equilibrium price, but when market price hits the ceiling, it can"t rise anymore = market price equals price ceiling. At this price, quantity demanded quantity supplied. Shortage so people who want to buy at are unable. Mechanisms arise: lineups form super might sell only to their own racial or. General result: when gov. imposes a binding price ceiling on competitive market, shortage of good arises, and sellers must ration the scarce goods among the large number of potential buyers.