ECON 208 Lecture Notes - Price Controls, Price Floor, Price Ceiling

• School: McGill University
• Department: Economics
• Course: ECON 208

Document Summary

Learning objective: describe how legislated price ceilings and price floors affect equilibrium price and quantity. Government price controls are policies that attempt to hold the price at some disequilibrium value. At any disequilibrium price, quantity exchanged is determined by the lesser of quantity demanded and quantity supplied. If, at a particular price, quantity demanded is less than quantity supplied, demand will be the amount actually exchanged, while the rest of the quantity supplied will remain on the hands of unsuccessful sellers. If, at a particular price, quantity demanded is greater than quantity supplied, supply will be the amount actually exchanged, while the rest of the quantity demanded will represent unsatisfied demand of would-be buyers. Figure 5-1 the determination of quantity exchanged in disequilibrium. For any price above p0, the quantity will be determined by the demand curve; for any price below p0, the quantity will be determined by the supply curve.