highest permissible price producer can legally charge, price not allowed to rise above level set >

to protect consumers from higher eqm price, gov sets max price < eqm price >

producers produce @ lower qty while consumers willing, able consume @ higher qty >

leads to shortage as qty dd>qty ss >

consumers able to buy food @ max price better off, consumers unable to buy food @ max price but willing, able buy > max price worse off >

producers sell @ lower price, revenue ↓, may use cheaper FOP to ↓ COP >

produces may lose incentive to produce, close down; loss of jobs, unemployment rate ↑, govt collects < corporate, income taxes >

govt rations goods thru non-pricing rationing, may lead to black market >

long run; quality of good worsen as producers use cheaper FOP >

producers may reallocate resources, further worsening shortage

Review: H1 Econs Microeconomics(Themes 1-2)