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Price Ceiling Essay

788 words - 4 pages

Price Ceilings

A price ceiling occurs when the government puts a legal limit on how high the price of a product can be. In order for a price ceiling to be effective, it must be set below the natural market equilibrium.

When a price ceiling is set, a shortage occurs. For the price that the ceiling is set at, there is more demand than there is at the equilibrium price. There is also less supply than there is at the equilibrium price, thus there is more quantity demanded than quantity supplied. An inefficiency occurs since at the price ceiling quantity supplied the marginal benefit exceeds the marginal cost. This inefficiency is equal to the deadweight welfare loss.

Graph of a ...view middle of the document...

Often these states have a lottery and if you are lucky enough to get drawn, you can try your luck at finding and shooting a moose during the season.
•Black Market: For those lucky enough to get some of the short supply, they are often better off selling what they have obtained to the demanders that will get more benefit out of it. In some cities there have been ceilings put on the apartment rent. While the demand for apartments increases, the rent remains the same. When some renters are ready to move, they sublease their apartment instead of ending their contract. If they were renting for $500, but someone is willing to pay $1000, then the subleaser can continue paying $500 and pocket the extra $500 he gets from the subleasee.
•Queue/First Come First Serve: Had they raised the price of tickets to $100 the opening night of Star Wars: Episode I, I wouldn't have been willing to camp out two nights to get a ticket. Since they didn't let the market determine the price, however, there was a huge line and those that were there first got to buy tickets. Of course, in this case they may have wanted the "buzz" that would come from having people camp out a week early just to get tickets, but there are other cases where a buzz isn't useful.
•Historical Use: Sometimes the government will allow the consumers that were already consuming to continue consuming. This would be hard to do since after the...

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