GOVERNMENT MARKET INTERVENTION Price Controls

 Price Ceilings  Legal maximum price  Example: rent controls (note: in NC, state legislation prevents cities from imposing rent controls… this is not true for all states)  Price Floors  Legal minimum price  Example: minimum wages Price controls are usually implemented because government does not like a market outcome. Implementing price controls will either 1) have untended consequences or 2) have no effect at all.

Price Controls Price Ceilings  Binding Price Ceilings  Occurs if the Price Ceiling is below equilibrium price  Has the unintended side effect of persistent shortages  Non-binding Price Ceilings  Occurs if the Price Ceiling is above equilibrium price  Has no effect on the market Price Floors  Binding Price Floors  Occurs if the Price Floor is above equilibrium price  Has the unintended side effect of persistent surpluses  Non-binding Price Floors  Occurs if the Price Floor is below equilibrium price  Has no effect on the market

Price Quantity S D $60 10 $160 $10