Section 4
Government Intervention and Disequilibrium
By Boundless
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Governments intervene in markets when they inefficiently allocate resources.
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A price ceiling is a price control that limits how high a price can be charged for a good or service.
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A binding price ceiling will create a surplus of supply and will lead to a decrease in economic surplus.
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A binding price floor is a price control that limits how low a price can be charged for a product or service.
![Thumbnail](../../../../../../figures.boundless-cdn.com/20078/raw/surplus-from-price-floor.jpg)
Binding price floors typically cause excess supply and decreased total economic surplus.
![Thumbnail](../../../../../../figures.boundless-cdn.com/20252/raw/dweight-loss-price-ceiling.jpg)
Deadweight loss is the decrease in economic efficiency that occurs when a good or service is not priced at its pareto optimal level.
![Thumbnail](../../../../../../figures.boundless-cdn.com/20069/square/icable-to-this-nara-512556.jpeg)
Many argue that price controls ensure resource availability, but most economists agree that these controls should be used sparingly.
![Thumbnail](../../../../../../figures.boundless-cdn.com/15170/square/-accounting-professionall1.jpeg)
Governments use its tax systems to raise funds for its programs and influence its citizens' economic actions.
![Thumbnail](../../../../../../figures.boundless-cdn.com/20146/raw/ax-incidence-28producer-29.jpg)
Tax incidence falls mostly upon the group that responds least to price, or has the most inelastic price-quantity curve.