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Unformatted text preview: Chapter 5 A. P rice Controls- social or legislative control over the price of a good 1) Price ceiling- maximum price, above which price cannot be legal; a price ceiling above the equilibrium point has no affect; a price ceiling will only change outcome if it is placed lower than the equilibrium point a) Binding (i.e., effective)- will change the outcome; causes shortage; sellers hurt the most from this; buyers are ambiguously effected; quantity transacted goes down b) Non-binding (i.e., ineffective)- no affect on outcome 2) Price Floor- minimum price, below which price can’t legally go below; if price floor is at equil it has no effect; it will only have an effect when it is set above the market equil; floor pushes prices up, quantity supplied goes up but quantity demanded goes down; this creates a surplus and it will persist as long as floor is enforced; sellers are ambiguously affected, some sellers won’t be able to get customers and only sellers that are able to find buyers will benefit while other sell nothing; buyers are adversely affected a) Binding (i.e., effective)- causes prices to go down; quantity transacted goes down along with...
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- Spring '06