1. Price Floors & Ceilings
Government Price Controls in a Free Market?

2. Price Floors & Ceilings
Examples of Government Price controls
Changing the result of the invisible hand
They were used in the 1970’s but are rarely used in the U.S. economy today.
They generally reduce efficiency!

3. Federal Minimum Wage History
1980 $3.10
1981 $3.35
1990 $3.80
1991 $4.25
1996 $4.75
1997 $5.15
2007 $5.85
2008 $6.55
2009 $7.25
California
$8.00
    
minimum wage rates higher than the Federal
minimum wage rates the same as the Federal
No minimum wage law
minimum wage rates lower than the Federal
American Samoa has special minimum wage rates

4. Raise the Minimum Wage to $800/hr
Benefits
Costs

5. . Min. Wage Workers Minimum Wage: Gov’t Imposed Price Floor S1 $850
Minimum wage rises: 725/hr => 850/hr
Min. Wage Workers
Surplus of Supply S1
Price Floor
$850 . QD QS
$725
End Result: Less Workers hired! (Q1-QD) E1 D1 Q1

6. . MARIN & Min. Wage Min. Wage Workers
Marin Minimum wage is approx. 800/hr
Min. Wage Workers S1 .
$900 E1
Price Floor
$800 D1
No Effect—(below market equilibrium)

7. Rent Control
Benefits
Costs

8. . Price Ceiling imposed of $700
Rent Control: Gov’t Imposed Price Ceiling
Price Ceiling imposed of $700
Apartments S1 .
Result: Less apartments rented! (3000-QS)
$900 E1
Price Ceiling
$700 QS QD D1
Shortage of Supply
3,000

9. . Price Ceiling Continued…. S1 $1200 E1 D1
Price Ceiling imposed of $1,200
Apartments
No Effect—(Above Mkt. Equilibrium) S1 .
$1200
Price Ceiling
$900 E1 D1
3,000

10. Summary Price floors: (example: min. wage)
Above market equilibrium cause a surplus of supply
The market shrinks! (less goods are sold!)
Below market equilibrium have no effect
Price Ceilings: (example: rent control)
Below market equilibrium cause a shortage of supply
The market shrinks (less goods are sold)
Above market equilibrium have no effect

11. PRICE FLOOR