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

• School: University of Miami
• Department: Economics
• Course: ECO 211
• Professor: Lorca Maria

Document Summary

Floor or ceiling: ceiling- 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: floor- the minimum price a company can set for an item, set by the government. Price controls- an attempt to set, or manipulate, prices through government involvement in the market. 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. 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.