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Unformatted text preview: Econ notes; Supply, Demand and government policies 17/09/2007 13:13:00 Controls on Price • o Price Ceiling – a legal maximum on the price at which a good can be sold o Price Floor – a legal minimum at which a good can be sold • How Price Ceilings affect market outcomes o Non binding – when a price ceiling is set above the equilibrium price it has no effect on the market of a good because the good will move towards equilibrium o Binding – when a ceiling is set below the equilibrium restricts the markets ability to level out supply and demand. There will be higher demand than producers are willing to supply o QuickTime fi and a TIFF (Uncompressed) decompressor are needed to see this picture. o This naturally leads to a shortage. When there is a shortage the good must be rationed in some way either by lines which are inefficient or seller bias which is unfair o In a free market the rationing system is efficient and fair, anyone who wants to buy something at a given price is able to do so o A binding price ceiling also results in less of the good being available...
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This note was uploaded on 04/07/2008 for the course ECON 112 taught by Professor Howard during the Spring '08 term at Conn College.
- Spring '08