Economics chapter 5
When the price ceilings matter
A price ceiling is illegally imposed maximum price. When the price is set below the equilibrium price, the quantity demanded will exceed the quantity supplied. This will result in a shortage. Price ceilings matter when they are set below the equilibrium price.
Nonbinding price ceilings
And a price ceiling is above the equilibrium price
Price controls
Are an attempt to set prices through government involvement in the market
Price ceilings
Are legally established maximum prices for goods or services
Binding Price floor
Creates a surplus; has two unintended consequences: a smaller demand then equilibrium quantity , and the lower black market price to eliminate the glut of the product
Black market
Illegal markets that arise when price controls are in place
Rent control
Is a price ceiling that applies to the housing market
Price floors
Legally established minimum prices for goods or services
Price gouging laws
Place a temporary feeling on the price is the sellers can charge during times of emergency
What affects the price ceilings have on economic activity
Price ceilings create to unintended consequences: a smaller supply of the good and the higher price for consumers who turn to the black market
Price controls
Price controls are enacted to ease perceived burdens on society
Minimum wage
The lowest hourly wage rate that firms may legally pay their workers
Binding price ceiling
When a price ceiling is below the market price; prevent sellers from increasing the price and causes them to reduce the quantity they offered for sale
Nonbinding price floors
When the price floor is below the equilibrium of the price