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Unformatted text preview: Theoretically, if left alone, a market will naturally settle into equilibrium: the equilibrium price ensures that all sellers who are willing to sell at that price, and all buyers who are willing to buy at that price will get what they want. At equilibrium, supply is exactly equal to demand. However, in some cases, the government will interfere with the market, putting in price ceilings or price floors, charging taxes, or using other measures to reshape the economy. A price ceiling is an upper limit for the price of a good: once a price ceiling has been put in, sellers cannot charge more than that. In most cases, price ceilings are below market price. If a price ceiling is set at or above market price, there will be no noticeable effect, and the ceiling is only a preventative measure. If the ceiling is set below market price, however, there will be a shortage of goods. For instance, if the government thinks 1) that however, there will be a shortage of goods....
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- Fall '11