However, in many cases these upper limits are well above the market interest rate. For example, if the interest

rate is not allowed to rise above 30% per year, it can still fluctuate below that level according to market forces.

A price ceiling that is set at a relatively high level is nonbinding, and it will have no practical effect unless the

equilibrium price soars high enough to exceed the price ceiling.

4.3 The Market System as an Efficient Mechanism for Information

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Apply demand and supply models to analyze prices and quantities

• Explain the effects of price controls on the equilibrium of prices and quantities

Prices exist in markets for goods and services, for labor, and for financial capital. In all of these markets, prices

serve as a remarkable social mechanism for collecting, combining, and transmitting information that is
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