econ 201 reading notes-4

econ 201 reading notes-4 - 20:24 Controls on Prices Price...

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20:24 Controls on Prices 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 Price Ceilings 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 Price Floors A binding price floor causes a surplus Shortages resulting from price ceilings can lead to undesirable rationing mechanisms,  so can the surpluses from price floors Prices have the crucial job of balancing supply and demand (thereby coordinating  economic activity) When policy makers set prices by legal decree, they obscure the signals that normally  guide the allocation of society’s resources Taxes
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econ 201 reading notes-4 - 20:24 Controls on Prices Price...

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