price ceiling

price ceiling - 5.b The Effects of Price Ceilings A price...

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5.b The Effects of Price Ceilings A price ceiling is a maximum price placed on a particular good by the government. In other words, it is a limit to the price at which an item can be sold. If the price ceiling is set above the natural equilibrium price of the good, it is said to be not binding. However, if the ceiling is placed below the free-market price, it produces a binding price constraint and a shortage occurs. Price ceilings are placed on certain items for the general purpose of establishing equity (dividing the wealth equally). The intended goal of price ceilings is to help out the poor by making these goods available at a price they can afford. Despite these good intentions, binding price ceilings actually make the poor, and everybody else, worse off. Because of the resulting shortages, valuable resources, like time, will be wasted by waiting in lines for an item. Producers of the item in demand find some way of dividing the good among the people who want it. It is sometimes based on race, sex, or wealth status. This method is usually unfair because the item might not get to the person who values it the most. Binding price ceilings and shortages lead to the illegal practice of the black market.
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price ceiling - 5.b The Effects of Price Ceilings A price...

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