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3 Tutorials that teach Binding & Non-Binding Constraints
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Binding & Non-Binding Constraints

Binding & Non-Binding Constraints

Author: Dan Laub
Description:

This lesson covers binding & non-binding constraints.

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Notes for "Binding and Non-Binding Constraints"

 

Key Terms

  • Equilibrium
  • The price and quantity pair at which supply and demand intersect; price and quantity at which the market clears.
  • Price Ceiling
  • A set price level bounding the highest price at which a good or service may be sold; typically initiated by a government or regulatory body—ex.rent control policy.
  • Price Floor
  • A set price level bounding the lowest price at which a good or service may be sold; typically initiated by a government or regulatory body—ex. Minimum wage.
  • Binding constraint
  • A price level bounding that pre-empts market clearing.
  •  Non-binding constraint
  • A price level bounding that is ineffective relative to the existing market clearing price and quantity combination.
  •  Shortage (market)
  • The opposite side to a surplus. A situation, often caused by an imposed constraint, that results in a shortage of supply occurring at the market price due to the inability of the market to adjust to market clearing price and quantity.
  • Surplus (market)
  • A situation, often caused by an imposed constraint, that results in excess of supply occurring at the market price due to the inability of the market to adjust to market clearing price and quantity.