S U P P LY, D E M A N D A N D

GOVERNMENT
I N T E RV E N T I O N
Name: Angeline Igdalino
Year& Course: BSBA-1
Proof: Mr. Marianito Tan
 Introduction
We're going to talk about demand and supply
model and what happens when the
government put some restriction on that on the
way that the demand or supply function so
we're going to think specifically about what
happens if the government puts a price control
price floor or ceiling and what happens if the
government imposes a tax in a market
 Price Ceiling
What Is a Price Ceiling? A
price ceiling is the mandated A price ceiling is a limit
1
maximum amount a seller is
2
on the price of a good or
allowed to charge for a service imposed by the
product or service. Usually
government to protect
set by law, price ceilings are
typically applied to staples consumers by ensuring
such as food and energy that prices do not
products when such goods become prohibitively
become unaffordable to expensive.
regular consumers.
 Non-Binding Price Ceiling
A non-binding price ceiling imposes a
maximum price on the market that is
above the equilibrium price. As the
equilibrium price is already following the
government price guideline, there is no
change in the market. A non-binding
price floor imposes a minimum price that
is below the equilibrium price.
Example of Non-
Binding Price Ceiling

For example, if the

market price of socks
is $2 per pair and a
price ceiling of $5 per
pair is put in place,
nothing changes in the
market, since all the
price ceiling says is
that the price in the
market cannot be
 Binding Price Ceiling
An effective (or binding) price ceiling is
one that is set below equilibrium price.
Effective price ceilings and floors create
dead-weight loss. An effective price floor
creates a surplus and benefits suppliers.
An effective price ceiling creates a
shortage and benefits consumers.
Example of Binding
Price Ceiling

A common example of a
price ceiling is the rental
market. Consider a rental
market with an equilibrium
of $600/month. If the
government wishes to
decrease this price to
make it more affordable
for renters, it may place a
binding price ceiling of
$400/month. This policy
means the landlords
Binding Price Ceilings Create
Shortages

When demand exceeds supply at

the price that is sustained in a
market, a shortage results. In
other words, some people will
attempt to buy the good supplied
by the market at the prevailing
Other Rationing
Mechanism
- Line
- Discrimination
* Favoritism
- Black Market
 Line
Allocates the goods to the people who
have the ability to go stand in a line in
other words allocates the good to the
people with the lowest opportunity cost of
their time.
In Economics line are inefficient.
 Discrimination
Treating different potential buyers
differently notice that what this
does a rationing Mechanism like
this foreces the sellers to do that.
 Black Market
A black market is any market where
the exchange of goods and services
takes place in order to facilitate the
transaction of illegal goods or to avoid
government oversight and taxes, or
both.