In some markets, govs. intervene to keep prices of certain items higher/lower than wat would result from market finding its own equilibrium price.
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Maximum Price Controls (Price Ceiling)
~ r only valid where it is below market equilibrium price.
Eg. of max. price legislation:
-staple foods, such as rice, cooking oil
-subsidised transport fares
-rent control
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Impact of government intervention on markets-Maxim
At price ceiling, excess demand occurs
As price can't be increased, supply has to be allocated through:
-queuing
-rationing, which may result in black market
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Minimum Prices Control (Price Floor)
A min. allowable price set above equilibrium price is a ~
With a ~, gov. forbids a price below min.
Price Floors r min. prices set by gov. for certain commodities & services that it believes r being sold in an unfair market with too low of a price & thus their producers deserve some assistance.
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Impact of government intervention on markets-Minim
Government might set Min. prices
To raise incomes for producers such as farmers & protect them from frequent fluctuations in commodity market.
To protect workers & ensure that they get a enough wages to sustain a reasonable standard of living.
Eg
Demerit guds, tobacco, alcohol
Imported guds where domestically produced close substitutes r available.
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