{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

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

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
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.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Ask a homework question - tutors are online