Chapter 4 Markets in action Part 2 Price Control

Flashcards about Price Controls, Price Ceilings, and Price Floors.

Price Controls

Laws implemented by governments to restrict market forces related to supply and demand.

Types of Price Controls

Two types: price ceilings and price floors.

Price Ceilings and Price Floors

Maximum and minimum prices enacted by law.

Price Ceiling

A legally established maximum price a seller can charge.

Why Governments Impose Price Ceilings

To ensure that the wider community can access the product/service sold.

Result of Price Ceilings

Results in an excess of quantity demanded over quantity supplied at the ceiling price.

Rent control

Results in a shortage of rental units.

Counterproductive Effects of Rent Ceilings

Excessive shortages, illegal markets, less maintenance, discrimination.

Price Floor

A legally established minimum price a seller can be paid.

Why Governments Create Price Floors

To lower the consumption of a good, or ensure some employees are not disadvantaged.

Result of Price Floors

An excess of quantity supplied over quantity demanded at the floor price.

Examples of Price Floors

Minimum wages and agricultural price supports.

Unintended Consequences of Price Floors

Unemployment, overproduction, and waste of resources.