ECON 202 Lecture Notes - Lecture 7: Price Floor, Economic Equilibrium, Price Ceiling
13 Jul 2015
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Econ 202: principles of microeconomics - lecture 7: economic efficiency, government. On occasion, the government might override market outcomes by setting prices. These legally set prices are often imposed to aid either buyers or sellers. Price ceiling: a legally determined maximum price that sellers may charge. Price floor: a legally determined minimum price that sellers may receive. Example: agricultural price supports that set a certain minimum price on farm goods. Suppose the equilibrium price in the market for wheat is per bushel, at which point 2 billion bushels can be sold. However, if the government sets a legally binding price floor of . 5 per bushel, the quantity of bushels demanded and sold will drop from 2 billion to 1. 8 billion. Because the price shifts above equilibrium, the consumer surplus represented by panel. B & c refer to the deadweight loss in this example.
