When Market Participants Are Allowed Through Their Interactions to Find

question 148

Essay

When market participants are allowed through their interactions to find the price,there will be equilibrium where the quantity supplied by buyers equals the quantity supplied by sellers.If this is the case,why does the government intervene in certain markets by imposing a price floor? Why does the government intervene in certain markets by imposing a price ceiling? Which market participant (the buyer or the seller)will lobby the government to secure passage of a binding price floor? Which one will lobby for a binding price ceiling?

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Definitions:

SEC

The United States Securities and Exchange Commission is a federal body tasked with overseeing the securities market and safeguarding investors.

Fair Price

The equilibrium price for a good or service in the market where the quantity supplied equals the quantity demanded.

Exercise Price

The predetermined price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Market Price

The current financial rate for assets or services set by the open market.