Ch 6 Government Actions in Markets - Government Actions in...

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Government Actions in Markets Chapter 6 1
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Price Controls Price Ceiling: Maximum legal price (the highest price at which a good can legally be sold) Examples: caps, rent controls, salary caps, utilities Creates the following: A shortage Increased Search Activity Black Market Price Floor: Minimum legal price (the lowest 2
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Price Ceiling—Shortage Demand: Q d = 2000 - 2 Supply: Q s = P - 400 Ceiling Level: $600 Creates Shortage of 600 units 3 S=MC D=MB 1000 900 800 600 400 200 400 800 equilibrium Shortage
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Price Ceiling Price ceiling above the equilibrium are not effective No change if the price cannot raise above a level it was never at If effective, a price ceiling always creates a shortage (Qd > Qs) 4
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Price Ceiling—Search Activity Allocating the shortage 1. Lines (waiting) Who will get item? Those with the lowest cost of waiting True cost = price + cost of waiting 2. Circumvent the rule Key money (high prices for something necessary other then rent) 3. Coupons 5
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This note was uploaded on 02/23/2012 for the course ECONOMICS 251 taught by Professor Kelly during the Summer '11 term at Purdue University-West Lafayette.

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Ch 6 Government Actions in Markets - Government Actions in...

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