Chapter 6 - Chapter 6: Government Actions in Markets I....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 6: Government Actions in Markets I. Market with a Price Ceiling a. Price ceiling or price cap-government regulation that makes it illegal to charge a price higher than a specified level a.i. Effects depend on whether ceiling is imposed at level above or below equilibrium price b. Price ceiling set above equilibrium has no effect c. Price ceiling set below equilibrium has powerful effect c.i. Quantity demanded exceeds quantity supplied— shortage d. The time spent looking for someone with whom to do business with is called a search activity d.i. When price is regulated and there is a shortage, search activity is increase e. Opportunity cost of a good not only is equal to is price but also the value of search time spent on finding the good f. Black market-illegal market in which the equilibrium price exceeds the price ceiling f.i. Price ceiling encourages black markets g. Inefficiency of Price Ceiling g.i. Marginal social benefit (MSB) exceeds marginal social cost (MSC) and a deadweight loss shrinks producer surplus and consumer surplus g.ii. Quantity supplied is less than efficient quantity h. Are Price Ceilings Fair? h.i. According to fair rules view, anything that block voluntary exchange is unfair, so price ceilings are unfair h.ii. According to fair result view, a fair outcome is one that benefits the less well off II. A Labor Market with Minimum Wage a. Price floor-government imposed regulation that makes it illegal to
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/14/2011 for the course ECO 201 taught by Professor Dunlevy during the Fall '08 term at Miami University.

Page1 / 3

Chapter 6 - Chapter 6: Government Actions in Markets I....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online