ECO 1304 Chapter Notes - Chapter 4: Price Ceiling, Economic Equilibrium, Price Controls
18 Dec 2016
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Equilibrium price: where quantity demanded = quantity supplied; the amount that buyers are willing and able to buy is exactly equal to the amount that sellers are willing and able to produce. Market equilibrium: the point at which the market supply and market demand curves intersect. Shortage is when quantity demanded > quantity supplied; occurs when price is below equilibrium. Surplus is when quantity supplied > quantity demanded; occurs when price is above equilibrium. The demand and supply curves do not shift when there s a change in price. When there are simultaneous shifts in both supply and demand curves, either the equilibrium price or the equilibrium quantity will be indeterminate without more information. Price controls are the use of government power to establish a price different from the market equilibrium price. A price ceiling, or a legally established maximum price, is often set for goods deemed important to low income households, like housing.
