14_controls2008 - Elasticity and Price Floors When demand...

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1 Price Controls in Competitive Markets 1. Motivation for price controls. 2. Price floors. 3. Price ceilings. 4. Efficiency losses. Price Controls Price controls are laws that set the market price or put limits on it. Floors and Ceilings A price floor sets a minimum price. Motivation: help sellers by forcing prices up . A price ceiling sets a minimum price. Motivation: help buyers by forcing prices down . Price Floors • Sellers who get higher prices. Losers: • Sellers who no longer sell. • Buyers. • Society as a whole (lost surplus). Winners:
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Unformatted text preview: Elasticity and Price Floors When demand is elastic, more sellers are losers and fewer are winners. Price Ceilings Buyers who pay lower prices. Losers: Buyers who no longer buy. Sellers. Society as a whole (lost surplus). Winners: 2 Elasticity and Price Ceilings When supply is elastic, more buyers are losers and fewer are winners. Efficiency Losses from Price Controls Loss of surplus (already covered). Enforcement costs. Wasteful activity by excess demanders or suppliers. Quality degradation....
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14_controls2008 - Elasticity and Price Floors When demand...

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