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Price Ceilings and Floors

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Hey guys,

 

I'm doing an IA on this article, and I'm unsure on the ceilings and floors listed. Since price ceilings must be below market equilibrium (and floors above), how is it possible to represent the price range graphically? The price floor (IDR 0.77 million) would have to go underneath the equilibrium, wouldn't it?

 

Thanks for the help!

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You have the definitions mixed up. 

 

Price ceiling: a government imposed legal maximum a producer can charge for a good or service 

 

Price Floor: a government imposed legal minimum a producer can charge for a good or service 

 

Price ceilings are put into place normally when the government feels the existing equilibrium price is too high, thus the price ceiling price will be BELOW the equilibrium. In your article, the government is raising the price ceiling, thus bringing it closer to the equilibrium, in order to help producers. I drew out what's happening in your article here: http://www.ibsurvival.com/files/file/3272-ib-survival-help/ 

 

Hope this helps! :)

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