1. What Happens When Prices are not in Equilibrium?

2. Review from Supply and demand
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How does this impact the supply/demand curve?

3. Price Controls
What prices do you consider to be unfair because they are too high or too low?

4. Should the government do something about these prices that you feel are unfair?

5. How are Prices determined for most items in the united States?

6. Supply and Demand
Prices of most goods are determined by the free market economic system whereby the laws of supply and demand determine the prices.
Government Regulations do exist to control prices, but the majority of prices are determined by the market.

7. Reasons for the free Market:
Prices reflect the preferences and circumstances of individual buyers and sellers.
Allows for competition where buyers compete with buyers and sellers compete with sellers
Market Price is determined through this process and people’s individual choices
Allows individuals to determine how they want to allocate their limited resources

8. Some products prices are regulated by the government

9. Price Ceiling- Maximum price that can be charged for a good, as set by law
Quantity D S Qs Qd
Market-clearing price
Legal price ceiling set
below market price

10. Price Floor- minimum price that can be paid for a good that is set by law
Quantity Qd Qs D S
Legal price floor set above market price
Market-clearing price

11. A legally enforced price ceiling sets the maximum price that can be charged for a good or service. Therefore, price ceilings are adopted when some consumers feel that prices for products are too high
A legally enforced price floor sets a minimum price for a product and is adopted when some producers feel that prices are too low
Those who argue for price ceilings or price floors will only be successful when they enjoy widespread public and political support (as with price controls on gasoline adopted in the early 1970’s) or when they can form effective special-interest groups.

12. Class Activity Instructions: Minimum wage
Decide whether each is a price floor or price ceiling.
Decide whether consumers or producers would favor the control.
Produce a market graph illustrating the result of this price control.
Minimum wage
Agriculture price minimums
Rent control
“Usury” laws on credit card loans, setting maximum interest rates
Price controls on gasoline in the 1970s