What is an effect of the price floor one effect is

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Unformatted text preview: sold. You can’t make suppliers sell more of the good than they want to.) Now look at Exhibit 6-5(b). Here you see a price floor of $12. What is an effect of the price floor? One effect is that a price floor creates a surplus in the market. Notice that at $12, quantity supplied (98) is greater than quantity demanded (65), which is the definition of a surplus. With the price floor, fewer units are bought and sold. Because buyers only want to buy 65 units at $12, only 65 units are bought and sold. QUESTION: Why does government some- times impose price controls (price ceilings and price floors)? ANSWER: Sometimes government imposes a price ceiling on a good because it wants to make the good cheaper for Price Controls Price floor S S $10 Price Price $12 $8 $10 Price ceiling D 0 60 80 100 D 0 65 80 Quantity (a) 98 Quantity (b) The two types of price controls are price ceilings and price floors. (a) A price ceiling creates a shortage and reduces the quantity of the good bought and sold from what would be the case in equilibrium. (b) A price floor creates a surplus and reduces the quantity of the good bought and sold from what would be the case in equilibrium. 138 Chapter 6 Price: Supply and Demand Together 06 (128-153) EMC Chap 06 11/21/05 3:13 PM Page 139 consumers to buy. For example, suppose the price of a particular medicine is $200 for a month’s supply. Government could impose a price ceiling on this medicine of, say, $100, with the hope that more people will be able to afford the medicine now. Of course, the unintended effect of this lower-than-equilibrium price is that a shortage will result. In other words, some of the people who need the medicine might not be able to buy the medicine at $100 because it is not available. Sometimes government imposes a price floor because it wants to assist a certain group of producers. For example, farmers sometimes argue that they need to receive a higher dollar price for what they sell. Suppose that the equilibruim price for a bushel of corn is $3. Farmers argue...
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This document was uploaded on 01/16/2014.

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