Download Price Ceilings and Price Floors

Supply, Demand and
Government Policies
Chapter 6
Copyright © 2001 by Harcourt, Inc.
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Price Controls...
Are
usually enacted when
policymakers believe the market price
is unfair to buyers or sellers.
Result in government-created price
ceilings and floors.
Price Ceilings & Price Floors
Price Ceiling
A legally established maximum price at which a
good can be sold. A binding price ceiling will be
set below the equilibrium price.
Price Floor
A legally established minimum price at which a
good can be sold. A binding price floor will be set
above the equilibrium price.
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
A Price Ceiling That Is Binding...
The price ceiling is binding if set below the
equilibrium price, leading to a shortage.
Price of
Ice-Cream
Cone
Supply
Equilibrium
price
$3
Price
ceiling
2
Shortage
Demand
0
75
Quantity
supplied
125
Quantity
demanded
Quantity of
Ice-Cream
Cones
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
A Price Floor That Is Binding... The price floor is
binding if set above the equilibrium price.
Price of
Ice-Cream
Cone
Surplus
$4
Supply
Price floor
$3
Equilibrium
price
Demand
0
80
Quantity
demanded
120
Quantity
supplied
Quantity of
Ice-Cream
Cones