ECON 111 Chapter Notes - Chapter 6: Price Ceiling, Price Floor, Working Poor
Document Summary
Economists have 2 roles: scientist (develop and test theories to explain the world around them) and policy advisor (use their theories to change the world for the better) Price ceiling - the legal maximum on a price that a good can be sold for. Price floor - the legal minimum on a price that a good can be sold for. When a shortage of ice cream develops because of the price ceiling, natural mechanisms of rationing ensue. Long line ups for ice cream (wastes buyer"s time) Sellers may decide to only sell to their friends, relatives, etc. (discrimination) This example shows that when the government imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration the scarce goods among a potentially large number of buyers. The rationing mechanism in a free, competitive market is both efficient and impersonal.
