Presentation on theme: "1. Collect Current Event 2. Finish Chapter 3 Notes: Ceilings and Floors 3. Review HW."— Presentation transcript:
1. Collect Current Event 2. Finish Chapter 3 Notes: Ceilings and Floors 3. Review HW
Sometimes government concludes that supply and demand will produce an equilibrium price that is unfair for buyer or seller… Price Ceiling: Maximum legal price a seller can charge. Designed to help the consumer! Must be below equilibrium price!!! Leads to chronic shortage!!! LO5 3-2
LO5 S P Q D P0P0 PCPC Q0Q0 Shortage QdQd QsQs ceiling $3.50 3.00 3-3 Gasoline $3.50 a gallon in burdensome to low-income people There is a lasting shortage of gasoline: Qd exceeds Qs So what does the government do now? Ration coupons? Many buyers are willing to pay above Pc…Black Market? What about Rent Controls?
Price Floors: minimum price set by the government above the market price Designed to help the supplier! Leads to chronic surpluses LO5 3-4
LO5 S P Q D P0P0 PfPf Q0Q0 Surplus QsQs QdQd floor $2.00 $3.00 3-5 Wheat Qs exceeds Qd Constant Surplus Government can decrease supply, increase demand, or buy and dispose of excess product Minimum Wage?
Economists go crazy when government tries to impose ceilings or floors… Good intentions produce many negative side effects.