Chapter 6 s,d,gov policies

Chapter 6 s,d,gov policies - Chapter 6: Supply, Demand, and...

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Chapter 6: Supply, Demand, and Government Policies Control On Prices At the equilibrium price, the quantity that buyers want to buy equals the quantity that sellers sell 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 good can be sold How Price Ceiling Affect Market Outcomes If price that balances supply and demand is below ceiling, the price ceiling is not binding If equilibrium price is above the price ceiling, the ceiling is a binding constraint on the market When a shortage develops because of price ceiling, some mechanism for rationing will naturally develop When government imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration the scare goods among the large number of potential buyers When the market reaches its equilibrium, anyone who wants to pay the market price can buy Free markets ration goods with price How Price Floors Affect Market Outcome Price floor places a legal minimum If the equilibrium price is above the floor, the price floor is not binding Market forces naturally move the economy to the equilibrium, and price floor has no effect
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This note was uploaded on 01/08/2012 for the course EC 101 taught by Professor Idson during the Fall '08 term at BU.

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Chapter 6 s,d,gov policies - Chapter 6: Supply, Demand, and...

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