ECN 104 Lecture Notes - Lecture 4: Price Ceiling, Price Floor, Deadweight Loss
11 Oct 2016
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The market price moves to the level at which the quantity equals the quantity demanded. But, this equilibrium price does not necessarily please either buyers or sellers. Therefore, the government intervenes to regulate prices by imposing price controls, which are legal restrictions on how high or low a market price may go. Price ceiling is the maximum price sellers are allowed to charge for a good or service. Price floor is the minimum price buyers are required to pay for a good or service. Price ceilings are typically imposed during crises wars, harvest failures, natural disasters because these events often lead to sudden price increases that hurt many people but produce big gains for a lucky few. Examples: the canadian government-imposed ceilings on aluminum, steel, sugar, milk and many other products during wwii, prescription drug prices, rent control. At price , look at supply line and demand line.
