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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
Sometimes, lawmakers determine that the market price is “too high” for consumers to pay, so they use their power to impose a ceiling on price below the market equilibrium price. Some examples of ceilings include rent controls (limits on increases in the rent paid for apartments), limits on the prices of medicines, and laws against “price gouging” after a hurricane (i.e., charging opportunistically high prices for goods such as bottled water or plywood).
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3.13. Market Interference: The Negative Impact on Total Surplus
Sometimes, lawmakers determine that the market price is “too high” for consumers to pay, so they use their power to impose a ceiling on price below the market equilibrium price. Some examples of ceilings include rent controls (limits on increases in the rent paid for apartments), limits on the prices of medicines, and laws against “price gouging” after a hurricane (i.e., charging opportunistically high prices for goods such as bottled water or plywood). Certainly, price limits benefit anyone who had been paying the old higher price and can still buy all they want at the lower ceiling price. However, the story is more complicated than that. Exhibit 16 shows a market in which a ceiling price, P c , has been imposed below equilibrium. Let’s examine the full impact of such a law. Exhibit 16. A Price Ceiling&


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