pure controls
↳ results ↳
in market disequilibrium & The setting of MINIMUM / MAXIMUM
prices by the
shortage / surplus govt / pvt organisations so that prices are unable to adjust
to their
equilibrium level determined demand &
by supply
I P R 1 C E C E I L I N G S
set to make certain goods moved ↳
legal maximum
price set for a
good
affordable to people on low incomes
* If the market was left free ,
market
forces
P S of demand / supply would force price upwards
equilibrium price set by forces of from Pe to Pe - but because of the
legal price
←
demand and supply pe ceiling , this does not happen
;
. -
- - - - - - - - - - - - - -
i * It must be BELOW EQ if it was above eg the
Pc , ,
q
- - - - - - - - - - - - - - •
i
- - - - - - -
←
-
,
price ceiling set BELOW EQPR ( Pe )
,
leading I shortage i. =
,
market would achieve eq & the
price ceiling
idem and:
'
""
F'
to a
shortage ( Qd > Qs )
0
would not be effective
Qs Qe Qd Q
CONSEQUENCES
°
:
lower I sold than at the equilibrium price ( Qs at Pc Qe at Pe )
quantity supplied
<
higher quantity demanded than at the equilibrium price ( Qd at Po > Qe at Pe )
Markets
→
For
A-
Shortages : because
of the price
ceiling ,
less
suppliers are
willing to
supply the
good as the price decrease, but the
price decrease the quantity demanded this that
willing / able to
buy the
-
increases means more consumers
good ( shortage
=
Qd -
Qs )
B- Non Price
-
Rationing :
( * Price
rationing : in a free market
system by ,
the
price system ,
those who are
willing +
able to
pay for a
good & the
good is rationed
among these consumers ) In a
shortage , price mechanism no
longer achieves it rationing function -
some consumers
willing + able to buy the good will go unsatisfied at
Pc Cbc Qs < Qd ) therefore goods will be distributed
through non -
price rationing methods : first come first
served favouritism by sellers etc ,
.
,
c-
Underground / Parallel Markets:-, illegal / unrecorded buying or
selling transactions
In case of price ceilings , they are
special form of price rationing -
buying a
good at MAXIMUM LEGAL
Arise of dissatisfied
PRICE and then
illegally reselling it at a
price HIGHER than MLP . as a result consumers
who could not purchase the
good because of less
supply + are
willing to
pay more than the
ceiling price .
, D- Underallocation of & allocate
resources to the
good lneffeuenoy : society is worse off
due to the underallocation of resources +
inefficiency because -
price ceiling result in a smaller
quantity supplied IQs Qe ) & not
enough allocated production of good
< under
resources are to the = -
relative to
production the social
optimum (demand in society )
E-
Negative Welfare Impacts :
p
p
f- MC
welfare loss S MC
%-___=g÷
=
consumer
surplus
a
I / ←
effects of
p
pee . . . -
± . .
.
,
.
preceding
market
? producer
surplus Pc -
? - -
- - - -
d- =
1
- -
,
¥
"
"
¥
e
I D= MB
I D= MB
, ,
, ,
0 Qe 0
Q Q
Qs Qe Qd
T → ( social surplus)
T
here , sum of consumer & producer surplus is maximum if there was no price control ,
as would be = atb
,
& Mc = MB
, indicating that allocate ve efficiency has ps =
ctdte & CS -1ps would be maximum
,
there
been achieved alto cat we
would be
effeuenoy
.
but at Pe only Qs produced &
supplied es ate
only
-
=
is
,
above ↳area demand
PS only supply below
=
e area
welfare Loss / Deadweight Loss :
represents ↳ curve but
only till Pc curve , but only till
social surplus / welfare benefits that are lost that that
since only qty is Pc since
only
to society because resources are not allocated
supplied qty is
supplied
efficiently ( resource misallocation) % social
surplus = a + Cte I
compared to
before Pc ,
areas b. d have been lost /welfare loss)
( alto cat we lneffeuency, [at Qs ,
MB > Mc ] due to underallocation of resources to the production of
the
good ; indicating that
society is not
getting enough of the good )
→
For stakeholders
Consumers e' loses b'
'
'
A- partly gain partly CS but at lower
price (E)
→
: lose
gains
-
a more
, ,
consumers can afford the
good ,
but less is
supplied ,
so some consumers remain unsatisfied as
they
all
are not able to consume the
good at .
B- Producers : worse
off
-
Pc lowers the
good of the price & hence
they sell smaller qty a
to
of the
good Revenue drops from Pe ✗ Qe to Pc ✗ Qs Ps decreases fromt et dte e
.
.
↳
welfare loss
transferred to consumer
?⃝
Workers
c. : worse
off ; fall in
output levels ( Qe to Qs)
may
lead to loss of jobs ( unemployment
D-
govt : no
gains / losses
↳ results ↳
in market disequilibrium & The setting of MINIMUM / MAXIMUM
prices by the
shortage / surplus govt / pvt organisations so that prices are unable to adjust
to their
equilibrium level determined demand &
by supply
I P R 1 C E C E I L I N G S
set to make certain goods moved ↳
legal maximum
price set for a
good
affordable to people on low incomes
* If the market was left free ,
market
forces
P S of demand / supply would force price upwards
equilibrium price set by forces of from Pe to Pe - but because of the
legal price
←
demand and supply pe ceiling , this does not happen
;
. -
- - - - - - - - - - - - - -
i * It must be BELOW EQ if it was above eg the
Pc , ,
q
- - - - - - - - - - - - - - •
i
- - - - - - -
←
-
,
price ceiling set BELOW EQPR ( Pe )
,
leading I shortage i. =
,
market would achieve eq & the
price ceiling
idem and:
'
""
F'
to a
shortage ( Qd > Qs )
0
would not be effective
Qs Qe Qd Q
CONSEQUENCES
°
:
lower I sold than at the equilibrium price ( Qs at Pc Qe at Pe )
quantity supplied
<
higher quantity demanded than at the equilibrium price ( Qd at Po > Qe at Pe )
Markets
→
For
A-
Shortages : because
of the price
ceiling ,
less
suppliers are
willing to
supply the
good as the price decrease, but the
price decrease the quantity demanded this that
willing / able to
buy the
-
increases means more consumers
good ( shortage
=
Qd -
Qs )
B- Non Price
-
Rationing :
( * Price
rationing : in a free market
system by ,
the
price system ,
those who are
willing +
able to
pay for a
good & the
good is rationed
among these consumers ) In a
shortage , price mechanism no
longer achieves it rationing function -
some consumers
willing + able to buy the good will go unsatisfied at
Pc Cbc Qs < Qd ) therefore goods will be distributed
through non -
price rationing methods : first come first
served favouritism by sellers etc ,
.
,
c-
Underground / Parallel Markets:-, illegal / unrecorded buying or
selling transactions
In case of price ceilings , they are
special form of price rationing -
buying a
good at MAXIMUM LEGAL
Arise of dissatisfied
PRICE and then
illegally reselling it at a
price HIGHER than MLP . as a result consumers
who could not purchase the
good because of less
supply + are
willing to
pay more than the
ceiling price .
, D- Underallocation of & allocate
resources to the
good lneffeuenoy : society is worse off
due to the underallocation of resources +
inefficiency because -
price ceiling result in a smaller
quantity supplied IQs Qe ) & not
enough allocated production of good
< under
resources are to the = -
relative to
production the social
optimum (demand in society )
E-
Negative Welfare Impacts :
p
p
f- MC
welfare loss S MC
%-___=g÷
=
consumer
surplus
a
I / ←
effects of
p
pee . . . -
± . .
.
,
.
preceding
market
? producer
surplus Pc -
? - -
- - - -
d- =
1
- -
,
¥
"
"
¥
e
I D= MB
I D= MB
, ,
, ,
0 Qe 0
Q Q
Qs Qe Qd
T → ( social surplus)
T
here , sum of consumer & producer surplus is maximum if there was no price control ,
as would be = atb
,
& Mc = MB
, indicating that allocate ve efficiency has ps =
ctdte & CS -1ps would be maximum
,
there
been achieved alto cat we
would be
effeuenoy
.
but at Pe only Qs produced &
supplied es ate
only
-
=
is
,
above ↳area demand
PS only supply below
=
e area
welfare Loss / Deadweight Loss :
represents ↳ curve but
only till Pc curve , but only till
social surplus / welfare benefits that are lost that that
since only qty is Pc since
only
to society because resources are not allocated
supplied qty is
supplied
efficiently ( resource misallocation) % social
surplus = a + Cte I
compared to
before Pc ,
areas b. d have been lost /welfare loss)
( alto cat we lneffeuency, [at Qs ,
MB > Mc ] due to underallocation of resources to the production of
the
good ; indicating that
society is not
getting enough of the good )
→
For stakeholders
Consumers e' loses b'
'
'
A- partly gain partly CS but at lower
price (E)
→
: lose
gains
-
a more
, ,
consumers can afford the
good ,
but less is
supplied ,
so some consumers remain unsatisfied as
they
all
are not able to consume the
good at .
B- Producers : worse
off
-
Pc lowers the
good of the price & hence
they sell smaller qty a
to
of the
good Revenue drops from Pe ✗ Qe to Pc ✗ Qs Ps decreases fromt et dte e
.
.
↳
welfare loss
transferred to consumer
?⃝
Workers
c. : worse
off ; fall in
output levels ( Qe to Qs)
may
lead to loss of jobs ( unemployment
D-
govt : no
gains / losses
