Chapter 6

The chapter opens up with the concept of price floors and ceilings, adding on to the previous 2 chapters' main concepts. A price ceiling is the maximum price that a good can be sold by the sellers for. A price floor is the minimum price that a seller can sell a good for. Both of these are government instituted policies, binding the markets to follow them. For example, if you take the hot dog industry, you could apply these policies to see their affects. If a price ceiling is set at $4, then the market can no longer raise it past that price. If a price floor is set at $2, then the market cannot sell below that amount. Whether or not the price floor and ceiling are binding depends on where the equilibrium is. If it is above the price ceiling or floor, then its binding, but if its below the equilibrium it is not binding. I thought it was interesting to see how an equilibrium price must change if the equilibrium was binded by the price ceiling or floor. It was also interesting to see how it affected supply and demand, each being affected differently based on whether its a price floor or ceiling, and where it is in relation to the equilibrium. If the price ceiling is lower than the equilibrium there will be a shortage, while if the price floor is above the equilibrium there will be a surplus. Another important part was on the mechanics of distribution and how different changes in the price floor and ceiling affect these methods.