EC120 Lecture Notes - Lecture 6: Price Floor, Demand Curve, Ice Cream Cone
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EC120 Full Course Notes
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Chapter 6 supply, demand, and government policies. This chapter analyzes various types of government policy using onlu the tools of supply and demand. We begin by considering policies that directly control prices. Price ceiling: a legal maximum on the price at which a good can be sold. Usually to protect consumers with low incomes. How price ceilings affect market outcomes (slide 7) Let"s assume that the government imposes a price ceiling on the market for ice cream. Two outcomes are possible: if the price ceiling > price equilibrium. The price ceiling is not binding (does not affect the market) So the market price = price equilibrium, and quantity supplied = quantity demanded (no surplus or shortage: if the price ceiling < price equilibrium. The price ceiling is binding (it affects the market) So the market price = price ceiling, and quantity supplied < quantity demanded (shortage)