EC 201 Lecture Notes - Lecture 5: Price Ceiling, Price Floor, Price Support

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19 Feb 2017
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Price ceilings: form of change or disruption to the market. A maximum legal price at which a good, service, or resource can be sold. Usually put in market when buyers say they can"t afford a good because it"s too expensive. Price will be set below equilibrium, so there will be a higher quantity demanded at the ceiling price and there will be a decrease in quantity supply. A binding price ceiling will be set below equilibrium so qd > qs so there will be a shortage. A non-binding price ceiling will be set below equilibrium (not common) Ex. rent control (max price on rents for apartments in big cities. May cause black markets to result, and quality of goods may decrease. Price for that good cannot go above that price. Price floor - another type of intervention in the market. A minimum legal price at which a good, service, or resource can be sold.

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