MGEA02H3 Lecture 5: Intro to Micro: Lecture 5
Premium

2 Pages
94 Views
Unlock Document

Department
Economics for Management Studies
Course
MGEA02H3
Professor
John Parkinson
Semester
Fall

Description
Chapter 5 Price Controls: legal restrictions on how high/low market price can go. Price Ceiling: max price sellers can charge. If set at or above equilibrium price, no shortage. Set below, shortage. Price Floor: minimum price buyers required to pay. If set below equilibrium price, no effect. PRICE CEILINGS How it causes Inefficiency: 1) Inefficiently Low Quantity - Reduces quantity, as prices lower and demand increases. Deadweight Loss: loss in total surplus that occurs whenever action/policy reduces quantity transacted below efficient market equilibrium quantity. 2) Inefficient Allocation to Consumers - More people interested in product as price low, causing unfairness. They may get product through luck despite not needing as much as others. 3) Wasted Resources - People spend money, effort, time to cope with shortages caused by ceiling prices. 4) Low Quality - No incentive to increase quality as it would just increase the expenses for producer, they aren't able to increase price with it. - Leads to bad quality item, as you get what you pay for. 5) Black Markets - goods/services bought/sold illegally Results of Price Ceilings: 1) Persistent shortage of the good 2) Inefficiency arising from persistent shortage in form of inefficiency low quantity transacted, inefficient allocation of good to consumer, resources wasted in searching for good, inefficiently low quality of good. 3) Emergence of black market activity. **Price ceiling pushes price of good down. **Price floor pushes price up. **Both ceiling and floor reduce the quantity bought and sold. PRICE FLOORS How it causes Inefficiency: 1) Inefficiently Low Quantity - Reduces quantity of good bought/sold below market equilibrium quantity and leads to deadweight loss. Same effect as price ceiling. Deadweight Loss: loss in total surplus that occurs whenever action/policy reduces
More Less

Related notes for MGEA02H3

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit