ECON 102 Lecture Notes - Lecture 11: Price Ceiling, Price Controls, Market Clearing
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Price control law= a law that mandates what price buyers and sellers must trade at. Price always moving towards market clearing price floor is above equilibrium bc that"s were price wants to fall. Ceiling has to be below equilibrium bc that"s where price wants to rise. Cost-benefit analysis of maximum price control laws: producer surplus = area bw supply and price, if price is lower, shrinks producer surplus and quantity. Consumer surplus is trapezoid (green)- consumer supply decreases surplus. Maximum price control: benefit some consumers and harm others, harm other producers, do more harm than good harm exceeds benefits. Minimum price control: push prices up, consumers will be worse off so shrinks consumer surplus, also harms producers bc when you produce price up, quantity demanded will decrease which limits the quanity that gets exchanged. Producer surplus is trapezoid limited by quantity demanded line.