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Lecture 32

ECON 1010 Lecture 32: Lecture 32

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ECON 1010
Laura K.Brown

o982 Principles of Microeconomics CHAPTER 6 – Supply, Demand, and Government Policies: Controls on Prices: 1. Buyers of any good always want a lower price while sellers want a higher price - the interests of the two groups conflict 2. Price ceiling: a legal maximum on the price at which a good can be sold 3. Price flooring: a legal minimum on the price at which a good can be sold How Price Ceilings Affect Market Outcomes: 1. The forces of supply and demand tend to move the price toward the equilibrium price, but when the market price hits the ceiling, it can rise no further 2. Ex: rent control 3. The market price equals the price ceiling 4. Shortage 5. A price ceiling above the equilibrium price is not binding – it has no effect on the market outcome 6. A price ceiling below the equilibrium price is a binding constraint 7. Creates a shortage (demand increase because of lower price from price ceilin
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