Floors and Ceilings

After World War II, many veterans came home and immediately decided to start families After World War II, many veterans came home and immediately decided to start families There was a great demand for housing in American cities There was a great demand for housing in American cities

Some local governments decided to impose rent control on apartments Some local governments decided to impose rent control on apartments They believed that prices were too high and decided to set a maximum price that landlords could charge They believed that prices were too high and decided to set a maximum price that landlords could charge

We call that a price ceiling We call that a price ceiling The supply of apartments will be very low as landlords rebel against the law and realize they can’t afford to rent at that low price The supply of apartments will be very low as landlords rebel against the law and realize they can’t afford to rent at that low price

Because of the low price, everyone wants to rent Because of the low price, everyone wants to rent Shortage will leave many people without a place to live Shortage will leave many people without a place to live

Some American prices are set by government price controls Some American prices are set by government price controls Imagine that unions appeal to the government for higher wages to keep up with cost of living increases Imagine that unions appeal to the government for higher wages to keep up with cost of living increases

Because it believes that the minimum wage is too low, the government will set a higher one. Because it believes that the minimum wage is too low, the government will set a higher one. The equilibrium price is too low according to the unions, workers, and govt The equilibrium price is too low according to the unions, workers, and govt

What is the minimum wage right now? What is the minimum wage right now? 2014: $ : $7.95 Jan 1, 2015: $8.10 Jan 1, 2015: $8.10 Tipped: $4.05 Tipped: $4.05

They set a new price that is higher than the market wants They set a new price that is higher than the market wants It will result in a surplus of workers for the available jobs It will result in a surplus of workers for the available jobs

Whenever they are effective, price floors will usually result in shortages Whenever they are effective, price floors will usually result in shortages They can be ineffective if the ceiling price is set above the equilibrium price or if the floor price is set below the equilibrium price They can be ineffective if the ceiling price is set above the equilibrium price or if the floor price is set below the equilibrium price

If the government wants to use a price ceiling on a product, what advice would you give? If the government wants to use a price ceiling on a product, what advice would you give?