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Market forces will push markets toward the equilibrium. As we noted before, in equilibrium neither buyers nor sellers have any incentive to change their behavior. As long as the market price remains at the equilibrium price, sellers don't wish to increase or decrease the quantity they are selling, and buyers don't wish to increase or decrease the quantity they are purchasing. This does not mean that everyone is happy about the equilibrium price. Sellers would prefer a higher price, and buyers would like a lower price. Sometimes one or both of these groups convinces the government to try to legally force the price above or below the equilibrium.

Some economies have more government price controls than others. In the U.S. economy there are federal programs designed to keep the price of agricultural products above the equilibrium price. Some cities have tried rent controls or prices to keep the cost of rental housing below the equilibrium price. Some governments impose limits for some goods on the quantities that may be bought and sold.

A legally imposed minimum price is called a price floor. A price ceiling is a legally specified maximum price. Rationing is a legal limit on the quantity of a good that can be bought and sold. All of these restrictions are attempts to thwart the forces that push markets toward equilibrium prices and quantities.

What happens in a market where a price floor, a price ceiling, or a quantity ration has been imposed? Is it enough to simply legislate the desired market price or quantity, or do other problems arise requiring additional government intervention? Over the next few pages, we will examine the effects of government policies intended to force outcomes on markets that are different from the equilibrium outcome. To fully understand how this works, we need to understand willingness to pay.

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