Govt Intervention

Govt Intervention - Govt Intervention Price Ceilings...

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Gov’t Intervention
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2 Price Ceilings Government-imposed maximum price that prevents the price of a good from rising above a certain level in a market Short side of the Market – Smaller of quantity supplied and quantity demanded at a particular price – When quantity supplied and quantity demanded differ, short side of market will prevail Price ceiling creates a shortage and increases the time and trouble required to buy the good – While the price decreases, the opportunity cost may rise Black Market – A market created by unintended consequences of government intervention • Goods are sold illegally at a price above the legal ceiling
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3 Figure 1: A Price Ceiling in the Market for Maple Syrup 60,000 50,000 40,000 T E V R D S $4.00 3.00 2.00 2. increases quantity demanded 3. and decreases quantity supplied. 4. The result is a shortage – the distance between R and V. Number of Bottles
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This note was uploaded on 02/17/2011 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Govt Intervention - Govt Intervention Price Ceilings...

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