ECON 1B03 Chapter Notes - Chapter 6: Price Ceiling, Price Floor, Economic Equilibrium

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ECON 1B03 Full Course Notes
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ECON 1B03 Full Course Notes
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Government will freeze prices with the help from their economists. Government establishes policies if market equilibrium is too high/low. Price ceiling: legal maximum on the price that can be charged for the good (think of ceiling in a room) Market price too high, government picks new lower price. Price ceiling is not binding (not effective) if it is set above equilibrium price. The gap (surplus) in between supply and demand after freezing will put downward pressure until it goes back to equilibrium. A binding (effective) price ceiling is always set below equilibrium price, leading to shortage / excess demand. Short side of the market dominates (the lower end between qd and qs) When demand and supply differ, the short side of the market (whichever is less) determines the quantity that is actually sold. There are more people who want scarce apartments, and fewer landlords who have lost interest.

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