U2 M8 Price Ceiling (copy)

Rationing

Dividing something out due to limited resources.

Scarcity

A situation where resources are limited, necessitating rationing.

Price System

A method of rationing resources, goods, or services through prices.

Non-Price Rationing

Methods of allocating resources without using price, such as queues, random assignments, and coupons.

Price Controls

Legal restrictions on how high or low a market price can go.

Price Ceiling

A maximum price set on an item that can hinder the rationing function of prices.

Market Clearing Level

The price at which the quantity supplied equals the quantity demanded.

Shortage

A situation that arises when the price ceiling is set below the market clearing level.

Equilibrium Price

The price at which supply and demand are balanced, resulting in no shortages or surpluses.

Purpose of Price Ceilings

To protect lower-income citizens from high prices and ensure access to necessities.

Effects of Price Ceiling

Can lead to shortages, inefficient allocation to consumers, wasted resources, and low-quality goods.

Black Markets

Illegal markets that arise when goods are sold at prices above the legal price ceiling.