23115 Lecture Notes - Lecture 7: Price Ceiling, Price Floor, Economic Equilibrium
Document Summary
In response to this shortage, some mechanism for rationing ice-cream will naturally develop. The mechanism could be long lines buyers who are willing to arrive early and wait in line get an ice-cream, whereas those who are unwilling to wait do not. Sellers will sell according to their own personal biases. 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. The rationing mechanism that develop under price ceilings are (cid:396)a(cid:396)el(cid:455) desi(cid:396)a(cid:271)le. Lo(cid:374)g li(cid:374)es a(cid:396)e i(cid:374)suffi(cid:272)ie(cid:374)t, (cid:271)e(cid:272)ause the(cid:455) (cid:449)aste (cid:271)u(cid:455)e(cid:396)s(cid:859) ti(cid:373)e. Price floor is a legal minimum on the price at which a good can be sold. The government is persuaded by the pleas of the national organisation of ice-cream makers whose members feel that the equilibrium price is too low. As a result, the government might institute a price floor.
