The Market Price

The market price moves to the level at which the quantity supplied equals the quantity demanded. BUT this equilibrium price does not necessarily please either buyers or sellers.Therefore, the government intervenes to regulate prices by imposing price controls or quantity controls.Both of which generate predictable and undesirable side effects.
Price controls are legal restriction on how high or low a market price may go.They can take two forms : a price ceiling and a price floor.
Price ceiling is the maximum price sellers are allowed to charge for a good or service. In addition,price ceilings are typically imposed during crises because these events often lead to sudden price increases that hurt many people but produce big gains for a lucky few.Prices ceilings cause some specific inefficiencies.
First, Price ceilings often lead to inefficiency in the form of inefficient allocation to consumers: people who want the good badly and are willing to pay a high price don’t get it, and those who care relatively little about the good and are only willing to pay a low price do get it. Second, Price ceilings typically lead to inefficiency in the form of wasted resources: people expend money, effort and time to cope with the shortages caused by the price ceiling.Third, Price ceilings often lead to inefficiency in that the goods being offered are of inefficiently low quality: sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price. It also encourages illegal activity as people turn to black markets,whare goods or services are bought and sold illegally, to get the good.
We will continue with second form of price controls.It is price floor. Price floor is the minimum price buyers are required to pay for a good or service. Just like price ceilings, price floors are intended to help some people but generate predictable and undesirable side effects. First, Price floors lead to inefficient allocation of sales among sellers:... [continues]

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