ECN 104 Lecture Notes - Lecture 6: Price Ceiling, Price Floor, Price Controls

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Lecture notes from chapter 6: supply, demand & government policies. Government policies that alter the private market outcome. Price ceiling: a legal max on the price of a good or service (rent control. Price floor: a legal minimum on the price of a good/service (minimum wage) Taxes the government can make buyers or sellers pay a specific amount on each unit bought/sold. We use the supply. demand model to see how each policy affects the market outcome (price buyers buy, sellers sell, etc. ) A price ceiling above the equilibrium price is not binding has no effect on the market outcome. A price ceiling below the equilibrium price is a binding constraint causes a shortage. In the long run, supply and demand are more price-elastic. With a shortage sellers must ration the goods among buyers. A price floor below the equilibrium price is not binding - has no effect on the market outcome.

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