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Eco Max and Min Prices

The document discusses maximum and minimum prices for goods. It explains that maximum prices are set below the equilibrium price to make goods more affordable and create shortages, while minimum prices are set above the equilibrium price to encourage production of goods and create surpluses. The effects of maximum prices include shortages, black markets, and reduced profits for firms.

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Kavya Bhanushali
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30 views9 pages

Eco Max and Min Prices

The document discusses maximum and minimum prices for goods. It explains that maximum prices are set below the equilibrium price to make goods more affordable and create shortages, while minimum prices are set above the equilibrium price to encourage production of goods and create surpluses. The effects of maximum prices include shortages, black markets, and reduced profits for firms.

Uploaded by

Kavya Bhanushali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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U M A N D M I N I M U M P R I C E S

MAXI M - AGNEYA & KAVYA


WHY
MAXIMUM PRICE
M AX IM UM P R I CE
• WILL NOT LET PRICE OF A PRODUCT INCREASE
ABOVE PMAX

• WILL ALLOW MORE PEOPLE TO AFFORD


(EX BASIC NECESSITIES AND INELASTIC)

• IS SET BELOW EQUILIBRIUM PRICE


• QD>QS (CREATES SHORTAGE)
• IF SET ABOVE, EFFECT NULLIFIED
(PRICE CAN INCREASE MORE)
MU M P RI CE ?
WHY SET A MAXI
•THE GOOD IS A BASIC NESSECITY
•INELASTIC SUPPLY
•MONOPOLY EXPLOITATION
•RESOURCE ALLOCATION
•TO DISCOURAGE PRODUCTION/CONSUMPTION OF A GOOD
EFFECTS OF MAXIMUM PRICES

•SHORTAGE
•INCENTIVE FOR A BLACK MARKET
•QUEUES, RATIONALISING, LOTTERIES
•MARKET BECOMES LESS PROFIT FOR FIRMS
MINIMUM PRICE
MINI M UM P RI C E
• WILL NOT LET PRICE OF A PRODUCT INCREASE
ABOVE PMIN

• TO ENCOURAGE PRODUCTION OF A PRODUCT


(EX - A NEW PRODUCT IN THE MARKET)

• IS SET ABOVE EQUILIBRIUM PRICE


• QS>QD (CREATES A SURPLUS)
• IF SET BELOW, EFFECT NULLIFIED
(PRICE CAN DECREASE MORE)

• CAN ALSO BE USED IN MINIMUM WAGE


THANKS

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