45 Key Concepts What can cause a shift in a demand curve? What can cause a shift in a supply curve? What are the two types of price controls? What is a price ceiling? What is a price floor? Why do we have price ceilings and floors? What is market failure?
46 Key Concepts cont. What happens when competition is lacking? What is an externality? What is a negative externality? What is a positive externality? What is a public good? What is another example of market failure?
48 Price ceilings and price floors are maximum and minimum prices enacted by law, rather than allowing the forces of supply and demand to determine prices. A price ceiling is a maximum price mandated by government, and a price floor is a minimum legal price.
49 $800 $600 $400 $200 2468 D S If a price ceiling is set below the equilibrium price, a shortage will persist ShortageRent ceiling P Q
50 WmWm WeWe QDQD QEQE QSQS D S If a price floor is set above the equilibrium price, a surplus will persist Unemployment Minimum wage
51 Market failure means that the market mechanism does not achieve desirable results. Sources of market failure include lack of competition, externalities, public goods, and income inequality. Although controversial, government intervention is a possible way to correct market failure.
52 An externality is a cost or benefit of a good imposed on people who are not buyers or sellers of that good. Pollution is an example of an external cost, which means too many resources are used to produce the product responsible for the pollution. Two basic approaches to solve this market failure are taxes (like in pollution taxes) and regulation (like in vaccinations).
53 P2P2 Q1Q1 External Cost of Pollution P1P1 S1S1 S2S2 Q2Q2 Includes external costs of pollution Excludes external costs of pollution D
54 Q1Q1 Q2Q2 D1D1 S External Benefits of AIDS Vaccinations D2D2 P1P1 Excludes Vaccination benefits Includes Vaccination benefits P2P2
55 Public goods are goods that are consumed by everyone regardless of whether they pay or not. National defense, air traffic control, and other public goods can benefit many individuals simultaneously and are provided by the government.