Maximum & Minimum Prices

In some markets, govs. intervene to keep prices of certain items higher/lower than wat would result from market finding its own equilibrium price.

• ~ 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

• 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

• 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.

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.