maximum prices - price ceiling Flashcards
define it
fixed price enacted by the governemtn and usually set below the equilibrium mkt price
legally prices cannot
go below that
why do we use a maximum price
to increase affordability of necessity g/s
e.g rented accom ad basic groceries
explain further to increase affordability of necessity of g/s
if gov feels mkt price is efficient but not very
affordable for most people
use max price to inrease afforablity and allow more consumers to access mkt
draw a maximum price market diagram
price of rented accom
quanitity of rented accom
draw a maximum price market diagram
price of rented accom
quanitity of rented accom
s and d
p max below eulibrium mkt ptrice and line
draw lines Qs and Qd
draw excess demand/shortage
what happens to price
lower from p1- p max
what happens to qd
extension of D and increases as consuemrs more willing and able to buy
q1 - qd
what happens to qs
contraction of S as prices are ower
producers less willing and able to produce
theyve responded to incentive to reduce price to decrease ouptut
q1-qs
there is a major mkt distortion becasue
demand is higher than supply
why is theree excess demand
producers are unable to satisfy deamdn
many consumers cannot acess mkt as no supply available
what was the producer revenue originally and now
p1 a q1 o
kjust shade and be awwar
now fallen to pmax b qs d
it has fallen dramtically
by gov intervenin unfirtunatley they have created a
deadweight loss
how do consumers feel about this
they beenffit as long as can acess mkt those in 0 - qs
greater affrodability so CS increases
impact is negative on some because many not able to acess qs-qd , may be forced to find alt supply thorugh smuggling goods or black market
- which is bery dangerous
may have to queue for long epriods of time /long wiaitng lsit
argue theyre suffering cuz of excess D concern
qhats the impact on consumers
not enjoying hte max price as contrsction of S and fall in producer surplus
loose out on rev profit margins and lower SOL
