ECON 200 Lecture Notes - Lecture 8: Price Ceiling, Price Controls, Deadweight Loss
11 Oct 2018
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When markets work well, prices adjust until the quantity of the good demanded is equal to the quantity supplied. There are three reasons why a government may step in and intervene in a market: 1 (cid:12254) correcting market failures. (cid:12254) changing the distribution of bene ts. (cid:12254) encouraging or discouraging consumption of certain goods. Price controls can be divided into categories: price ceiling and price oor. (cid:12254) price ceiling: a maximum legal price at which a good can be sold. Typically placed on essential goods and services such as food, gasoline, and electricity. The goal is to provide low-price commodity for people. Did the price ceiling meet the goal of providing low-priced tortillas to consumers? (cid:12254) yes. Consumers were able to buy some tortillas at the low price of sh. 25 a pound. (cid:12254) no. Consumers wanted to buy three times as many tortillas as producers were willing to supply.
