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6.3 Intervention in the Price System

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Karla Ramirez

on 11 March 2015

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Transcript of 6.3 Intervention in the Price System

6.3 Intervention in the Price System
Imposing Price Ceilings
-The price ceiling is the legal maximum price that sellers may charge for a product.
-The price ceiling is set below the equilibrium price , so a shortage will result.
-Government can interfere in the price system
Price Ceiling Example
Setting Price Floors
-price floor: a legal minimum price that buyers must pay for a product
- a price floor exists when the price is artificially held above the equilibrium price and is not allowed to fall
Minimum wage
-a legal minimum amount that an employer must pay for one hour of work
-if set above the equilibrium price for certain jobs in a market, employer may decide that it is not profitable to pay the higher wages
-if set below, it will have no effect
Rationing Resources and Products
-rationing: a government system for allocating goods and services using criteria other than price

Black Market Example
Rationing example
Black Market
-black market: involves illegal buying or selling in violation of price controls or rationing
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