ECN 104 Chapter Notes - Chapter 3: Price Floor, Price Ceiling, Economic Equilibrium
11 May 2016
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Document Summary
Market demand curves are found by summing up (horizontally) the demand curves of the many individual consumers in the market. The market supply curve is the horizontal summation of the supply curves of the individual producers of the product. The equilibrium price and quantity are established at the intersection of the supply and demand curves. Chapter 3-demand, supply and market equilibrium: the interaction of market demand and market supply adjusts the price to the point at which the quantity demanded and quantity supplied are equal, this is the equilibrium price. Simultaneous changes in demand and supply affect equilibrium price and quantity in various ways, depending on their direction and relative magnitudes. A price ceiling is a maximum price set by government and is designed to help consumers. A price floor is a minimum price set by government and is designed to aid producers. Government-set prices stifle the rationing function of prices and distort the allocation of resources.
