Microeconomics pt4/ Government intervention

Price controls

the setting of minimum or maximum prices by the government so that prices are not able to adjust to their equilibrium price. 

Price ceilings

maximum prices set by the government below the equilibrium price. 

What effect do price ceilings have?

Price ceilings have the effect of not allowing the price to rise above the one fixed by the government.  

Who will a price ceiling benefit/put at disadvantage?

The price ceiling will benefit the consumers that are able to get the good 

It will disadvantage those that will not be able to get the good because of the shortage. 

The producers are at a disadvantage as it lowers the price they can sell their good for, which lowers the quantity they’re willing to supply. 

Price floors

are minimum prices set by the government above the equilibrium price.

What effect do price floors have?

Price floors have the effect of not allowing price to go below the price fixed by the government. 

Who will price floors benefit/ put at a disadvantage?

The price floor will benefit the producers that are able to sell their goods

It will disadvantage those that cannot. 

The price floor also disadvantages consumers who now pay a higher price and consume less quantity.