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The price system's limitations sometimes lead governments to intervene in the market. Governments may set prices by establishing price ceilings and price floors that are intended to protect producers and consumers from dramatic price swings. Managing prices interferes with the normal interaction between supply and demand, however, and can maintain or even worsen market imbalances. VIDEO OBJECTIVES - Explain why governments sometimes set prices - Explain what governments try to accomplish through price floors, price ceilings, and rationing - Explain what happens when governments manage prices

The price system coordinates production decisions by steering producers and consumers toward market equilibrium. To reach equilibrium, producers must avoid surpluses and shortages frequently through a process of trial and error. A shift in either the demand or the supply curve can change a market's equilibrium point. VIDEO OBJECTIVES - Explain what market equilibrium is - Explain how the price system handles product surpluses and shortages - Explain how shifts in demand and supply affect market equilibrium