ECON 101 Chapter Notes - Chapter 5: Price Ceiling, Equilibrium Point, Price Controls

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4 Apr 2016
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ECON 101 Full Course Notes
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Often a high demand for governments to intervene in markets to maintain equity. Price controls- legal restrictions on how high/low a market price may go. Price ceiling- max price sellers are allowed to charge for a good/service. Price floor- minimum price buyers are required to pay for a good/service. Markets efficient before price controls are imposed, but not after (most situations) If markets are inherently inefficient, price controls can potentially move them closer to efficiency. Both price ceilings and price floors reduce quantity of goods bought/sold. Imposed when scarcity of resources would lead to huge profits for a select few companies. Create an artificial shortage b/c producers will produce less at a restricted price, meanwhile, more will be demanded b/c price is cheaper. Price ceilings set above the current equilibrium point will be nonbinding and not affect equilibrium. Create inefficiency in 4 ways: inefficiently low quantity, misallocation of goods, wasted resources, and inefficiently low quality.

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