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Unformatted text preview: Price controls Price ceiling - maximum price allowable Binding (i.e. effective) Ceiling is only binding if P Ceiling < P* P ceiling is set below the market equilibrium Causes a shortage Selling now becomes the restriction Non-binding (i.e. ineffective) Price ceiling is only helpful for those buyers that can still find a seller Price floor - minimum price allowable Binding (i.e. effective) P floor is binding if P floor > P* P floor is set above the market equilibrium Causes a permanent surplus Buying now becomes the restriction Non-binding (i.e. ineffective) Quantity restriction - maximum quantity allowable If a quantity restriction is set below the market equilibrium, which causes the new market equilibrium to be higher in price but restricted in supply...
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- Spring '07
- Supply And Demand