Textbook Notes (368,448)
Canada (161,886)
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ECON 1B03 (303)
Chapter 6

Chapter 6

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Usman Hannan

CHAPTER 6: SUPPLY, DEMAND, AND GOVERNMENT POLICIES Controls on Prices - price ceiling: legal maximum on the price at which a good can be sold - price floor: legal minimum on the price at which a good can be sold How Price Ceilings Affect Market Outcomes - not binding when the price ceiling is above the equilibrium (market forces naturally move the economy to equilibrium so the price ceiling has no effect on the actual price or quantity) - binding constraint when it is set below the equilibrium (market price equals the price ceiling, demand exceeds the quantity) - when the gov’t imposes a binding price ceiling on a competitive market, a shortage of the good arises and sellers must ration the scarce goods among the large number of potential buyers - rationing mechanisms: long lines, discrimination according to bias’ (unfair, inefficient) How Price Floors Affect Market Outcomes - not binding price floor when the floor is placed lower than the equilibrium point - binding constraint when the floor is above the equilibrium level (market price equals price floor, quantity supplied exceeds demand causes a surplus) Evaluating Price Controls - price ceilings/floors are the result of millions of buyers/sellers decisions that lie below the supply and demand curves - price controls often aimed
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