Markets
seek equilibrium, and the demand for goods and services will come to an
equilibrium with supply of goods and services. When markets are not in
equilibrium, surpluses and shortages, as well as underground markets,
can exist. Sometimes, the government may want to intervene in markets
to try to help reduce economic hardships. What is the difference between a
price floor and price ceiling? According to the laws of demand and
supply and how market equilibrium, efficiency, and equity are reached,
do attempts to repeal those laws and market results with price floors
and price ceilings justify legislative bodies to implement price
controls? Review
the mechanics of supply and demand. Disequilibrium between supply and
demand will occur if price is above (surpluses) or below (shortages).
Why does a price floor lead to surpluses? Why does a price ceiling lead
to shortages? Review consumer and producer surplus. A price floor
will lead to a transfer of consumer surplus to producer surplus; a price
ceiling will lead to a transfer of producer surplus to consumer
surplus; both price regulations lead to deadweight losses, which is a
loss of surplus to society. Why?
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