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Price Ceiling & Floor

Price Ceiling & Floor. Price Ceiling. Definition: A market intervention in which the government ensures that the price of a good or service stays below the free market price. S. Price Ceiling. D. Problems. Q D >Q S Shortage Allocate insufficient supply. S. Price. P * P C. D.

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Price Ceiling & Floor

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  1. Price Ceiling & Floor

  2. Price Ceiling

  3. Definition: A market intervention in which the government ensures that the price of a good or service stays below the free market price. S Price Ceiling D

  4. Problems • QD >QS • Shortage • Allocate insufficient supply S Price P* PC D QS Q* QD Quantity

  5. Rent Control • How much rent a landlord can charge • Low QS • High QD • Long Lines • Long Applications • $ did not matter • Effect: reduced Price P* PC QS Q* QD Quantity

  6. Price Floor

  7. Definition: A market intervention in which the government keeps the price of a good or service above the free market price. S Price Floor D

  8. Problems • QS >QD • Excess Supply • Gov’t steps in • Consumers = QD • Gov’t= QS -QD S PF P* Price D QDQ* QS Quantity

  9. Turning Milk into Cheese • Milk Surplus in the 80’s • Government stepped in & purchased excess product. • The surplus milk was then made into cheese • This was distributed to programs like Relief and school lunch programs. S PF P* Price D QDQ* QS Quantity

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