econ ch. 4 - WHY GOVERNMENTS CONTROL PRICES - market moves...

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1 WHY GOVERNMENTS CONTROL PRICES - market moves to equilibrium– that is, the market price moves to the level at which the quantity supplied equals the quantity demanded - buys would always like to pay less if they could - sellers would always like to get more money for what they sell - PRICE CONTROLS are legal restrictions on how high or low a market price may go - they can take two forms: a PRICE CEILING, a maximum price sellers are allowed to charge for a good, or a PRICE FLOOR, a minimum price buyers are required to pay for a good - whether it legislates them down by imposing a price ceiling or up by imposing a price floor WHY A PRICE CEILING CAUSES INEFFICIENCY - a market or an economy is INEFFICIENT if there are missed opportunities: some people could be made better off without making other people worse off INEFFICIENT ALLOCATION TO CONSUMERS - price ceilings often lead to inefficiency in the form of inefficient allocation to consumers: people who want the good badly and are willing to pay a high price don’t get it, and those who care relatively little about the good and are only willing to pay a low price do get it WASTED RESOURCES - price ceilings typically lead to inefficiency in the form of wasted resources: people spend money and expend effort in order to deal with the shortages caused by the price ceiling INEFFICIENTLY LOW QUALITY - price ceilings often lead to inefficency in that the goods being offered are of INEFFICIENTLY
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econ ch. 4 - WHY GOVERNMENTS CONTROL PRICES - market moves...

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