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1. Collect Current Event 2. Finish Chapter 3 Notes: Ceilings and Floors 3. Review HW.

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Presentation on theme: "1. Collect Current Event 2. Finish Chapter 3 Notes: Ceilings and Floors 3. Review HW."— Presentation transcript:

1 1. Collect Current Event 2. Finish Chapter 3 Notes: Ceilings and Floors 3. Review HW

2 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

3 LO5 S P Q D P0P0 PCPC Q0Q0 Shortage QdQd QsQs ceiling $ 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?

4 Price Floors: minimum price set by the government above the market price Designed to help the supplier! Leads to chronic surpluses LO5 3-4

5 LO5 S P Q D P0P0 PfPf Q0Q0 Surplus QsQs QdQd floor $2.00 $ Wheat Qs exceeds Qd Constant Surplus Government can decrease supply, increase demand, or buy and dispose of excess product Minimum Wage?

6 Economists go crazy when government tries to impose ceilings or floors… Good intentions produce many negative side effects.


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