文档介绍：Supply, Demand and Government Policies
Chapter 6
Supply, Demand, and Government Policies
In a free, unregulated market system, market forces establish equilibrium prices and exchange quantities.
While equilibrium conditions may be efficient, it may be true that not everyone is satisfied.
One of the roles of economists is to use their theories to assist in the development of policies.
Price Controls...
Are usually enacted when policymakers believe the market price is unfair to buyers or sellers.
Result in government-created price ceilings and floors.
Price Ceilings & Price Floors
Price Ceiling
A legally established maximum price at which a good can be sold.
Price Floor
A legally established minimum price at which a good can be sold.
Price Ceilings
Two es are possible when the government imposes a price ceiling:
The price ceiling is not binding if set above the equilibrium price.
The price ceiling is binding if set below the equilibrium price, leading to a shortage.
A Price Ceiling That Is Not Binding...
$4
3
Quantity of
Ice-Cream
Cones
0
Price of
Ice-Cream
Cone
Demand
Supply
Price
ceiling
Equilibrium
price
100
Equilibrium
quantity
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
A Price Ceiling That Is Binding...
$3
Quantity of
Ice-Cream
Cones
0
Price of
Ice-Cream
Cone
2
Demand
Supply
Equilibrium
price
Price
ceiling
Shortage
125
Quantity
demanded
75
Quantity
supplied
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Effects of Price Ceilings
A binding price ceiling creates ...
shortages because QD > QS.
Example: Gasoline shortage of the 1970s
nonprice rationing
Examples: Long lines, Discrimination by sellers
Lines at the Gas Pump
In 1973 OPEC raised the price of crude oil in world markets. Because crude oil is the major input used to make gasoline, the higher oil prices reduced the supply of gasoline.
What was responsible for the long gas lines?
Economists blame