econ week 2.docx

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Economics for Management Studies
Michael Krashinsky

Controls on prices - Price ceiling: a legal maximum on the price at which a good can be sold - Price floor: a legal minimum on the price at which a good can be sold How price ceiling affect market outcomes - The price that balances supply and demand is below the ceiling, the price ceiling is not binding (usually no effect on price or quantity sold) - The equilibrium price is above the price ceiling, the ceiling is a binding constraint on the market - tend to move price close to equilibrium - when shortage occurs from price ceiling, mechanism for rationing will occur (buyers who are willing to arrive early and wait in line to get a come, while those unwilling to wait do not) - ration to personal bias - when the government imposes a binding
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