Price Ceilings and Floors - Lesson 01.09 Price Ceilings and...

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Lesson 01.09 Price Ceilings and FloorsIf the laws of supply and demand are allowed to work, then equilibrium will be the result. However, many times governments step in and make laws concerning prices of goods. For example, in command economies such as North Korea where the central government makes allof the economic decisions, the government determines what is produced and how much it costs.On the other hand, the United States government allows the laws of supply and demand to workin some instances, but regulates the economy in other instances. When the U.S. government regulates a specific market, it artificially imposes price restrictions that affect the quantity demanded and quantity supplied of a product. Market forces are not allowed to work properly when governments set price controls. Two tools that the government uses to impact the economy are price floors and price ceilings.Price floors occur when the government sets the lowest price a business is allowed to charge for a good or service. It is called a floor, because the price cannot go below the floor. For

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