Applications

Applications: Price Control

Having built the supply–demand framework, we can now put it to work. A useful application is to study government intervention in the form of price control. It often becomes necessary for the government to regulate the prices of certain goods and services when the market-determined price is judged to be either too high or too low in comparison to what is considered desirable.

This chapter analyses two such forms of price control, each within the framework of perfect competition, to see what impact the regulation has on the market for the good:

• A price ceiling — a government-imposed maximum price — studied in the next section (5.2.1).
• A price floor — a government-imposed minimum price — studied in section 5.2.2. …