Transcript Government Intervention in Markets

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Government Intervention in
Markets
Copyright 2006 – Biz/ed
http://www.bized.co.uk
Government Intervention in Markets
Price
Price Controls:
Maximum prices
below normal equilibrium
S
Black Market
Price
£18
£10
P Max
£6
Suppliers
reduce
thelead
Shortages
may
the equilibrium
amount
offered
to 60 but
The
government
toAssume
black
market
price is would
£10 and
demand
risethe
to
imposes
a
maximum
prices
way
amount
bought
and
140
creating
aabove
shortage
price
of
£6
(P
Max)
100
the
free
ofsold
80equilibrium
–isrationing
might
have
to belevel
introduced
market
D
60
100
140
Quantity Bought and Sold
Copyright 2006 – Biz/ed
http://www.bized.co.uk
Government Intervention in Markets
Price
Price Controls:
Minimum prices set
above normal equilibrium
S
Min P
£9
£5
Example – Minimum
At the higher price,
Wage
Legislation
in
Assume
initial
Government
demand
would
fall
equilibrium
price
= £5,
the
UK – in
theory
imposes
minimum
whereas
supply
and
amount
bought
should
lead
to
price
of
£9
(Min
P)
would
rise
–
and
sold = 200a but
unemployment
surplus would exist.
in reality?
D
170
200
240
Quantity Bought and Sold
Copyright 2006 – Biz/ed