6 Book Notes, Econ 201

6 Book Notes, Econ 201 - 6BookNotes,Econ201...

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6 Book Notes, Econ 201 Economists are scientists and policy advisors  Price Ceiling:  a legal maximum on the price at which a good can be sold Price Floor:  a legal minimum on the price at which a good can be sold When Price Ceiling is imposed at MORE than equilibrium: 1. Price ceiling is  not binding 2. Price ceiling has no effect on the price or quantity sold  When Price Ceiling is imposed at LESS than equilibrium: 1. Price ceiling is a  binding constraint  on the market 2. When the price hits the ceiling it can by law rise no more, making the market price = price ceiling 3. Creates a shortage  ** When the government imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers   must ration the scarce goods among the large number of potential buyers ** Free markets are better because at equilibrium anyone who has the money to buy something can get it.  Free Markets always seem to work better than government regulation. 
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This note was uploaded on 10/13/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.

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6 Book Notes, Econ 201 - 6BookNotes,Econ201...

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