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Price Ceilings Price Ceilings &&

Price FloorsPrice Floors

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What is a Price Ceiling?What is a Price Ceiling?A maximum price set by

government below the below the marketmarket generated equilibrium price

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Why a Price Ceiling?Why a Price Ceiling?

When a price has been rising rapidly, often due to limited supply, the government may want to help the consumers.

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What are the economic affects of a price ceiling?What are the economic

affects of a price ceiling?• Lowers price, lower

quantity•The ceiling creates a shortage

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With a Price Ceiling what determines who gets the

product?

With a Price Ceiling what determines who gets the

product?

• Queuing and line tickets

•Special groupings

•Favoritism

•Rationing, such as coupons

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What are some examples of Price Ceilings?

What are some examples of Price Ceilings?

World War II rationing

Gas in the late 1970’s

Rent control in some cities

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What is a Price Floor?What is a Price Floor?A minimum price set by

government above the above the marketmarket equilibrium price

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What could justify a Price Floor?

What could justify a Price Floor?

To help suppliers of a specific good to get a higher price than otherwise would be the case

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What could cause aLow Market Price?What could cause aLow Market Price?

Supply factors: push the supply curve rightward, reducing price

•An improvement in technology • Too many sellers

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What are the economic effects of a price floor?What are the economic effects of a price floor?

• Raises price, lower quantity

•The floor creates a surplus

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What is one problem with Price Floors?

What is one problem with Price Floors?

What to do with the surplus?

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Examples of Price Floors?

Examples of Price Floors?

American agricultureThe minimum wage law