23115 Lecture Notes - Lecture 6: Price Ceiling, Price Controls, Economic Equilibrium
Document Summary
Price controls are usually imposed when policymakers believe that the market price of a good or service is unfair to buyers or sellers. Suppose that the equilibrium price is per ice-cream. Australian association of ice-cream eaters complains that the price is too high for everyone to enjoy an ice-cream a day (their recommended daily allowance). If the ice-cream eaters are successful at lobbying the government, the government imposes a legal maximum on the price this is known as the price ceiling. Price ceiling is a legal maximum on the price at which a good can be sold. Because the price balances supply and demand () is below the ceiling, the price ceiling is not binding. Market forces naturally move the economy to the equilibrium and the price ceiling has no effect on the price or quantity sold. But, when the equilibrium price of is below price ceiling, the ceiling is a binding constraint on the market.
