Government Intervention in Markets

The government sets a maximum price that sellers can charge for a good. This price is below the equilibrium price. It is illegal to sell above the maximum price limit.

When a price ceiling is imposed, the quantity demanded exceeds the quantity supplied, leading to a shortage.

A black market is a situation where goods and services are traded illegally, often at prices higher than the legal maximum. This occurs because the legal market cannot meet the demand due to the imposed price ceiling.

When the government intervenes in the market by setting a price ceiling, it often leads to a reduction in producer surplus. This is because producers receive a lower price for their goods.

When the government intervenes in the market by setting a price ceiling, it often leads to an increase in consumer surplus. This is because consumers pay less for the goods they buy.

The government sets a minimum price that buyers must pay for a good. This price is above the equilibrium price. It is illegal to sell below the minimum price limit.

When a price floor is imposed, the quantity supplied exceeds the quantity demanded, leading to a surplus.

When the government sets a price floor, it aims to protect producers by guaranteeing them a minimum income. However, this often leads to a situation where the quantity supplied exceeds the quantity demanded, resulting in excess supply.