Presentation on theme: "By: Ervin Mafoua-Namy. We have been considering the way markets work under normal conditions. Sometimes, markets are not allowed to work. This means that."— Presentation transcript:
We have been considering the way markets work under normal conditions. Sometimes, markets are not allowed to work. This means that the price is not allowed to move to the equilibrium level. Two such conditions are price ceilings and price floors.
A price ceiling occurs when the price is artificially held below the equilibrium price and is not allowed to rise. Price ceilings lead to shortages Shortages create a rationing problem
First-come, First-served Sellers to choose Lottery The government make the choice of buyer
A price floor exists when the price is artificially held above the equilibrium price and is not allowed to fall. Price floors always generate surpluses.
The problem is: What to do with the surpluses Store simply broke the manufacturers policy. Absorb the surplus Change the name of the product
A buffer stock scheme is a government plan to stabilise prices in volatile markets. Prices for agricultural products are often volatile because Supply can vary due to the weather. Demand is inelastic Supply is fixed in the short term Buffer stock schemes aim to Stabilize Prices Ensure supplies. If there is a surplus one year, the market price would fall. This is when the government will buy the surplus stocks and store the goods. This reduces supply and keep prices higher. If there is a shortage in the next year, the government can sell from its buffer stock to reduce prices and increase market supply