chap 6 - 1 Chapter 6 Price Controls Learning objectives ` 1...

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Unformatted text preview: 9/27/2010 1 Chapter 6 Price Controls Learning objectives ` 1. Understand how price ceilings inevitably lead to shortages . 2 R i th i f f i ` 2. Recognize the various forms of nonprice competition that arise when effective price controls are imposed. ` 3. Understand how price floors lead to surpluses in the market. 9/27/2010 2 Price controls ` A price ceiling is a maximum legal price ` Examples: rent control, utilities ` A price floor is a minimum legal price ` Examples: minimum wage, farm price supports Price ceilings ` Example: rent control ` Price ceilings have to be set below the equilibrium price t h ff t to have any effect. ` Price ceiling = $600 Price (P) Quantity demanded (Q d ) Quantity supplied (Q s ) $400 1,200 $500 1,000 100 $600 800 200 $700 600 300 $800 400 400 $900 200 500 $1,000 600 9/27/2010 3 Rent control graph Supply Price $1,000 $800 $600 Demand Quantity of apartments 400 $600 800 200 $400 Shortage ` Whenever quantity demanded (Q d ) exceeds quantity supplied (Q s ), a shortage exists.), a shortage exists....
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This note was uploaded on 02/26/2012 for the course ECON 210 taught by Professor Staff during the Fall '08 term at Purdue.

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chap 6 - 1 Chapter 6 Price Controls Learning objectives ` 1...

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