outline chapter 6 - Chapter 6 Supply, Demand, and...

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Chapter 6 Supply, Demand, and Government Policies I. Control on prices Price ceiling: a legal maximum on the price of a good or service. Price floor : a legal minimum on the price of a good or service o How price ceiling affect market outcomes: -If the price ceiling is above the equilibrium price, it is not binding – and has no effect on the market outcome. -If the price ceiling is below the equilibrium price, it is a binding constrain and causes a shortage in the market. When the government imposes a binding price ceiling on a competitive market,a shortage of a good arises, and sellers must ration the scarce goods among the larger number of potential buyers. o How price floor affects market outcomes: -If the price floor is below the equilibrium price , it is not binding and has no effect on the market outcome. - If the price floor is above the equilibrium price , it is a binding constrain and causes a surplus. o
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outline chapter 6 - Chapter 6 Supply, Demand, and...

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