1. Consumer Choice and Controls
Microeconomics
Consumer Choice and Controls
Purpose: Identify reasons for and problems with price controls.

2. I. Goals Identify a shortage or a surplus.
Explain how a price ceiling or price floor can impact quantity demanded and quantity supplied.
Identify real world scenarios.

3. Shortage Surplus I. Price and Quantity
Quantity demanded is higher than quantity supplied
Excess Demand
Surplus
Quantity supplied is higher than quantity demanded
Excess Supply
Given enough time, markets will eventually reach equilibrium
This phenomenon is called, the Invisible Hand;

4. III. Government Intervention
1) Draw a supply and demand graph using these schedules for supply and demand and indicated equilibrium price and quantity.
Price
Quantity Supplied
Quantity Demanded
$200
20,000
170,000
$400
30,000
150,000
$600
40,000
130,000
$800
50,000
110,000
$1000
60,000
90,000
$1,200
70,000
$1,400
80,000

5. III. Government Intervention
2) The price is set at $400. What is the quantity demanded and quantity supplied? Which is larger? Is this a shortage or a surplus?
Price
Quantity Supplied
Quantity Demanded
$200
20,000
170,000
$400
30,000
150,000
$600
40,000
130,000
$800
50,000
110,000
$1000
60,000
90,000
$1,200
70,000
$1,400
80,000

6. III. Government Intervention
Price Ceilings
Maximum price set by the government for a product.
Ex. Rent Control
Seinfeld Clip:

7. III. Government Intervention
3) Draw a supply and demand graph using this supply and demand schedule. Indicate equilibrium.
Price
Quantity Supplied
Quantity Demanded $5
150,000
400,000 $6
300,000 $7
450,000
500,000 $8
600,000 $9
750,000
700,000

8. III. Government Intervention
4) The price is set at $8. What is the quantity demanded and quantity supplied? Which is higher? Is this a shortage or a surplus?
Price
Quantity Supplied
Quantity Demanded $5
150,000
400,000 $6
300,000 $7
450,000
200,000 $8
600,000
100,000 $9
750,000

9. II. Government Intervention
Price Floors
Minimum price set by the government for a product.
Ex. Minimum Wage
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