AP Microeconomics- Module 8

Legal restrictions on how high or low a market price may go

Maximum price sellers are allowed to charge for a good or service

Minimum price buyers are required to pay for a good or service

People who want the good badly and are willing to pay a high price don't get it, and those who care relatively little about the good and are only willing to pay a relatively low price do get it

People expend money, effort, and time to cope with the shortages caused by the price ceiling

Sellers offer low quality goods at a low price even though buyers would rather have higher quality and are willing to pay a higher price for it

Market in which goods or services are bought and sold illegally either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling

- Persistent shortage of the good
- Inefficiency arising from this persistent shortage in the form of inefficiently low quantity, inefficient allocation of the good to consumers, resources wasted in searching for the good, and the inefficiently low quality of the good offered for sale
- The emergence of illegal, black market activity

Legal floor on the wage rate, which is the market price of labor

Those who would be willing to sell the good at the lowest price are not always those who manage to sell it

Sellers offer high quality goods at a high price, even though buyers would prefer a lower quality at a lower price

- Persistent surplus of the good
- Inefficiency arising from the persistent surplus in the form of inefficiently low quantity, inefficient allocation of sales among sellers, wasted resources, and an inefficiently high level of quality offered by suppliers
- The temptation to engage in illegal activity, particularly bribery and corruption of government officials