Chapter 4 Summary - Chapter 4 Summary - Even when a market...

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Chapter 4 Summary - Even when a market is efficient, governments often intervene to pursue greater fairness or to please a powerful interest group. Interventions can take the form of price controls or quantity controls, both of which generate predictable and undesirable side effects consisting of various forms of inefficiency and illegal activity. - A price ceiling, a maximum market price below the equilibrium price, benefits successful buyers but creates persistent shortages. Because the price is maintained below the equilibrium price, the quantity demanded is increased and the quantity supplied is decreased compared to the equilibrium quantity. This leads to predictable problems: inefficiencies in the form of inefficiently low quantity transacted, inefficient allocation to consumers, wasted resources, and inefficiently low quality. It also encourages black markets to get the good. Because of these problems, price ceilings have generally lost favor as an economic policy tool.
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This note was uploaded on 01/24/2012 for the course ECON 2105 taught by Professor Iacopetta during the Spring '08 term at Georgia Institute of Technology.

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