ECO 1104 Lecture Notes - Lecture 6: Price Controls, Price Ceiling, Price Floor

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Cristina Blanco- Perez

Document Summary

When markets work well, prices adjust until the quantity of the good demanded is equal to the quantity supplied (markets gravitate towards the equilibrium) The government setting a maximum price (price control) The government setting a minimum price (price control) Price control: divided into 2 categories : price ceiling: a maximum legal price at which a good can be sold. Typically placed on: price floor: a minimum legal price at which a good can be sold. Typically placed on essential goods and services such as food, gasoline and electricity. agricultural goods that are risky to produce. Price controls provide incentives or disincentives to produce more/less of the equilibrium quantity. Yes: consumers were able to buy some tortillas at the low price of sh. 25 per kg. No: consumers wanted to buy 3 times as many tortillas as producers were willing to supply. This question can be answered using differences in consumer surplus and producers surplus before/after government intervention.