1 Essential Question: Explain the difference between a Price Ceiling and a Price Floor (explain why these are created and problems that they can create), Define the term rationing and the problems that rationing leads to, and define the term Black Market Managing Prices SECTION 3

2 Reasons governments set prices: to keep the market functioning smoothly to avoid instability caused by dramatic price swings To protect public good from suffering due to issues created from a capitalist system- ie: Too high or Too low prices Managing Prices SECTION 3

3 Price Ceiling: A Price Ceiling is a govt. regulation that limits how high a price can increase to. The intentions: Ensure that when highly demanded goods or services have a limited supply, the price cannot increase beyond what the majority of needy consumers can’t pay. The Consequences: Producers do not have the incentive to produce more resulting in a continued state of limited supply Managing Prices SECTION 3

4 Price Floor: A Price Floor is a govt. regulation that limits how low a price can decrease to. An example is minimum wage The intentions: Ensure that even though there may be low demand for a product, producers do not stop producing that product resulting in massive shortages that harm public good. The Consequences: Consumers may be forced to pay a higher price than they should OR taxes are used to provide subsidy. Managing Prices SECTION 3

5 Rationing: Rationing is a system where the government or other organization decides how to distribute goods. Intention: Ensuring that goods with limited supply are distributed as evenly as possible, not allowing people to consume extra even if they can afford to Consequence: When consumers are denied the quantities that they demand, they turn to Black Markets to obtain them. Managing Prices SECTION 3

6 Issues with Black Market Black Market violates law and encourages criminal activity Often times goods are sold at super high prices Often times goods are fake or of questionable quality This leaves consumers unsatisfied with no way to adjust. Managing Prices SECTION 3