chap 6 - S D & Govt Policies

chap 6 - S D & Govt Policies - Supply,Demand,and...

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Supply, Demand, and Government Policies Chapter 6
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So far Equilibrium determined  by market forces Equilibrium maintained by market forces
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Controls on Prices Some cases market forces are not allowed to  determine equilibrium price and quantity Intervention by authorities (Govt.) Price Ceilings Price Floors Taxes on Producers on Consumers
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P Q O P e S D Maximum price price ceiling  is the maximum legal price a seller  may charge for a good or service
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Price Ceilings Govt. sets the price LOWER than the equilibrium  (binding constraint) Why would they do this? What is the result? What is likely to happen? Who benefits? Who loses?
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Why would  they do it? To keep the price down to an acceptable  level. During wartime price controls may be  imposed on essential items such as  gasoline, rice etc.  (housing more affordable)
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fig P Q O P e Q d Q s S D shortage maximum price What are the results?
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What are likely to happen? Effects:
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chap 6 - S D & Govt Policies - Supply,Demand,and...

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