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Unformatted text preview: Chapter 5 Markets in Action Price Floor ( Fig 5-2 ) A price floor is a minimum permissible price. e.g. : Minimum wage, Agricultural price support Rationale : Sellers of essential goods should earn more. Avoid exploitation of labour (teen-agers) Results : An effective price floor is set above the equilibrium price results in fewer units being sold. makes buyers worse off, some sellers better off & other sellers worse off. causes excess supply. in labour markets excess supply results in unemployment is allocated by favoritism or asking sellers for credentials in agricultural markets excess supply is eliminated by government purchases quotas (output restrictions) EC120 Chapter 5 Markets in action 1 of 3 Result : Quotas only benefit the first owner Price Ceiling ( Fig 5-3 ) A price ceiling is a maximum permissible price....
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- Spring '08