1. Supply, Demand, and Government Policies  In a free, unregulated market system, who or what establishes Eq Q and Eq P?  Equilibrium conditions may be efficient, but…………..

2. Price Controls  Are usually enacted when policymakers believe the market price is unfair to buyers or sellers.

3. Price Ceilings & Price Floors  Price Ceiling ä A legally established maximum price at which a good can be sold.  Price Floor ä A legally established minimum price at which a good can be sold.

4. A Price Ceiling That Is Binding

5. $3 Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone 2 Demand Supply Equilibrium price

6. A Price Ceiling That Is Binding $3 Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone 2 Demand Supply Price ceiling Equilibrium price

7. A Price Ceiling That Is Binding $3 Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone 2 Demand Supply Price ceiling 75 Quantity supplied 125 Quantity demanded Equilibrium price

8. A Price Ceiling That Is Binding $3 Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone 2 Demand Supply Price ceiling Shortage 75 Quantity supplied 125 Quantity demanded Equilibrium price

9. Effects of Price Ceilings  A binding price ceiling creates... shortages because Q D > Q S …. non-price rationing, long lines

10. A Price Floor That Is Binding

11. $4 Quantity of Ice Cream Cones 0 Price of Ice Cream Cones 3 Demand Supply Equilibrium price

12. A Price Floor That Is Binding $4 Quantity of Ice Cream Cones 0 Price of Ice Cream Cones 3 Demand Supply Price floor Equilibrium price

13. A Price Floor That Is Binding $4 Quantity of Ice Cream Cones 0 Price of Ice Cream Cones 3 Demand Supply Price floor 80 Quantity demanded 120 Quantity Supplied Equilibrium price

14. A Price Floor That Is Binding $4 Quantity of Ice Cream Cones 0 Price of Ice Cream Cones 3 Demand Supply Price floor 80 Quantity demanded 120 Quantity Supplied Equilibrium price Surplus

15. Effects of a Price Floor  A price floor prevents supply and demand from moving toward the equilibrium price and quantity. ä When the market price hits the floor, it can fall no further, and the market price equals the floor price.

16. Effects of a Price Floor  A binding price floor causes...... Q S > Q D. ä Examples: The minimum wage Agricultural price supports

17. In the figure shown, which panel(s) best represent(s) the situation in the U.S. during the period of price ceilings on gasoline in the 1970s? a. panel (a) b. panel (b) c. both panel (a) and panel (b) d. neither panel (a) nor panel (b)

18. AP Micro Sample Free Response Suppose the township of Hinsdale introduces rent control. The maximum monthly rent for a two bedroom apartment is fixed at $700 a month. Identify two conditions for which this rent control law will have no effect on the number of two bedroom apartments available for rent. Identify two conditions for which this rent control law will have no effect on the number of two bedroom apartments available for rent.