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Lecture 4

ECO 211 Lecture Notes - Lecture 4: Price Gouging, Price Controls, Price Ceiling

Course Code
ECO 211
Lorca Maria

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Chapter 4: Price Controls
Price controls
Floor or ceiling
oCeiling- legally established maximum price that can be charged for a good or
service; cannot go over it
Government is trying to help the demand side of the economy; helping
the buyers
oFloor- the minimum price a company can set for an item, set by the
Helps producers
Binding or non-binding
Price controls- an attempt to set, or manipulate, prices through government involvement in the
Meant to ease perceived burdens on the population
Main problems with price controls: black market (illegal markets arise when price controls are
in place), reduction in size, reduction in quality
Binding- the price ceiling is below the equilibrium point
Non binging- the price ceiling is above the equilibrium point, so equilibrium can be achieved
Price gouging
Non binding price floor- below the equilibrium point; equilibrium can be achieved
Binding price floor- price is higher than equilibrium
Minimum wage- the lowest hourly wage rate the firms may legally pay their workers
Functions as a price floor
Labor markets
Consumers are the suppliers
Firms are the demanders
Wage is price
Firms are willing to buy from workers (labor)
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