Government and price-determination, Macroeconomics

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Government and Price-Determination can be understood as follows:

The government might intervene in the market and mandate the maximum price (price ceiling) or the minimum price (price floor) for a commodity or service.

A price ceiling is the maximum price limit which the government sets to ensure that prices don’t rise above that particular limit (medicines)

A price floor is the minimum price which the Government sets to support the required commodity or service in a society (wages)

Social cost is the cost of an economic decision, whether private or public, borne by the society as a whole.

Marginal social cost is the change in social costs due to unit change in output.


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