CHAPTER 6 - CHAPTER 6: SUPPLY, DEMAND, AND GOVERNMENT...

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CHAPTER 6: SUPPLY, DEMAND, AND GOVERNMENT POLICIES (EXAMPLES, GRAPHS, and EXERCISES are covered in class) In this chapter, we discuss two types of government policies that can alter the equilibrium price and demand determined by the intersection of demand and supply in the market. A) Controls on Prices : Whenever the government ‘artificially’ alters the market price. There are two types: 1. PRICE CEILINGS : A legal maximum price that can be charged. It is binding when it falls below the equilibrium price, in which case there will be a shortage . Though the goal of this policy is to make the good accessible to more individuals by setting a lower price, some consumers end up not being able to buy it at all due to the existing excess demand for the good. Example: rent control apartments. (Graph and examples provided in class) 2. PRICE FLOORS : A legal minimum that ought to be paid for a particular good or service. It is binding when it falls above the equilibrium price, in which case
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CHAPTER 6 - CHAPTER 6: SUPPLY, DEMAND, AND GOVERNMENT...

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