Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings and Price Floors

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Market for Tickets Read the following passage from a New York Times newspaper article and answer the three questions that follow. After you have answered the questions, pair up with another student and discuss your answers. Then, use the graph on the back to follow along with the teacher. Go to the Article

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Market for Tickets Answer These Questions On Your Paper “In the Race to Buy Concert Tickets, Fans Keep Losing” By Ellen Rosen Published 6 October 2007 in the New York Times Lisa Senauke, a Bruce Springsteen fan since 1973, tried to get tickets to his Oct. 26 concert in Oakland, Calif. The tickets were to go on sale at 10 a.m. on Sept. 17, and starting at 9:58 a.m., she logged into her Ticketmaster.com account, credit card in hand. But though she tried again and again for the next hour to buy tickets, she was always told the same thing: nothing available. Ms. Senauke’s frustration is not isolated. The coming concerts of…Miley Cyrus…sold out in minutes. And the same thing happened with tickets to recent reunion tours by the Police and Van Halen. While some fans just quietly give up, others have complained to government officials, particularly after they found tickets to the same concerts available -- sometimes at many times the face value -- on secondary sellers like Stubhub.com and TicketsNow minutes after the public sale began.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Market for Tickets Go to the Graph “In the Race to Buy Concert Tickets, Fans Keep Losing” By Ellen Rosen Published 6 October 2007 in the New York Times Lisa Senauke, a Bruce Springsteen fan since 1973, tried to get tickets to his Oct. 26 concert in Oakland, Calif. The tickets were to go on sale at 10 a.m. on Sept. 17, and starting at 9:58 a.m., she logged into her Ticketmaster.com account, credit card in hand. But though she tried again and again for the next hour to buy tickets, she was always told the same thing: nothing available. Ms. Senauke’s frustration is not isolated. The coming concerts of…Miley Cyrus…sold out in minutes. And the same thing happened with tickets to recent reunion tours by the Police and Van Halen. While some fans just quietly give up, others have complained to government officials, particularly after they found tickets to the same concerts available -- sometimes at many times the face value -- on secondary sellers like Stubhub.com and TicketsNow minutes after the public sale began. 1) In terms of supply and demand, what problem exists in the market for concert tickets? 2) Is this market in equilibrium? How do you know? 3) What is one idea you can think of to help solve this problem?

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Market for Tickets 4) Use the data and graph below to complete the following. a) Plot the data points onto the graph. Use all necessary labels. b) Suppose Miley Cyrus only charges $60 per ticket. Draw this price ceiling on the graph. Price ($) Demand (thousands) Supply (thousands) $ $ $ $ $10050 $ $ $ $ Draw GraphGo to Conclusion

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Market for Tickets 4) Use the data and graph below to complete the following. a) Plot the data points onto the graph. Use all necessary labels. b) Suppose Miley Cyrus only charges $60 per ticket. Draw this price ceiling on the graph. Price ($) Demand (thousands) Supply (thousands) $ $ $ $ $10050 $ $ $ $ Draw GraphGo to Conclusion D S Price Ceiling

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Market for Tickets 5) What is the equilibrium price and quantity in this market? 6) If the price Miley Cyrus charges for each ticket is below equilibrium, why doesn’t she raise her prices? Price ($) Demand (thousands) Supply (thousands) $ $ $ $ $10050 $ $ $ $ D S Price Ceiling

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Governments occasionally intervene in the free market by creating a price ceiling, which is a maximum price sellers are allowed to charge.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Governments occasionally intervene in the free market by creating a price ceiling, which is a maximum price sellers are allowed to charge. 1) The Price Ceiling A) Government may decide to limit prices to help consumers. One example of a price ceiling is the market for apartments in New York City. The government limits the price apartment owners can charge their tenants. D S Price Ceiling

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Governments occasionally intervene in the free market by creating a price ceiling, which is a maximum price sellers are allowed to charge. 1) The Price Ceiling A) Government may decide to limit prices to help consumers. Notice how the equilibrium price is $1,400, but the price ceiling only allows landlords to charge $800. This is called a binding price ceiling. D S Price Ceiling B) Price ceilings are only effective if placed below equilibrium. Equilibrium

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Governments occasionally intervene in the free market by creating a price ceiling, which is a maximum price sellers are allowed to charge. 1) The Price Ceiling A) Government may decide to limit prices to help consumers. In this example, 5 million apartments are demanded, but only 2 million are supplied. There is a shortage of 3 million apartments. D S B) Price ceilings are only effective if placed below equilibrium. C) Price ceilings cause shortages. Shortage

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Governments occasionally intervene in the free market by creating a price ceiling, which is a maximum price sellers are allowed to charge. 1) The Price Ceiling A) Government may decide to limit prices to help consumers. In this example, 5 million apartments are demanded, but only 2 million are supplied. There is a shortage of 3 million apartments. D S B) Price ceilings are only effective if placed below equilibrium. C) Price ceilings cause shortages. Shortage 2) Shortages A) A shortage means not all demand can be satisfied by the supply.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Governments occasionally intervene in the free market by creating a price ceiling, which is a maximum price sellers are allowed to charge. 1) The Price Ceiling A) Government may decide to limit prices to help consumers. In this example, 5 million apartments are demanded, but only 2 million are supplied. There is a shortage of 3 million apartments. D S B) Price ceilings are only effective if placed below equilibrium. C) Price ceilings cause shortages. Shortage 2) Shortages A) A shortage means not all demand can be satisfied by the supply. B) Market forces are unable to push the price back to equilibrium.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Are Inefficient Price ceilings cause a market to be inefficient because there are missed opportunities for transactions.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Are Inefficient Price ceilings cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Consumers who really want the good do not get it, and those who care only a little do get it. In New York City, some people desperately need an apartment. Current residents, however, might want to move but do not want to give up their spot.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Are Inefficient Price ceilings cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Consumers who really want the good do not get it, and those who care only a little do get it. Consumers who need an apartment in New York City end up spending a great deal of time and money looking for an available apartment. 2) Wasted Resources Consumers spend extra time and money dealing with shortages.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Are Inefficient Price ceilings cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Consumers who really want the good do not get it, and those who care only a little do get it. Because price ceilings limit a landlord’s revenue, he/she will often cut costs in undesirable ways, such as neglecting needed building maintenance. 2) Wasted Resources Consumers spend extra time and money dealing with shortages. 3) Inefficiently Low Quality Due to lower prices, suppliers offer a low-quality product even though buyers prefer higher quality.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Ceilings Are Inefficient Price ceilings cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Consumers who really want the good do not get it, and those who care only a little do get it. New York City apartments will often be sublet to other individuals illegally, or the landlord may allow a tenant to rent from him/her in exchange for monthly bribes. 2) Wasted Resources Consumers spend extra time and money dealing with shortages. 3) Inefficiently Low Quality Due to lower prices, suppliers offer a low-quality product even though buyers prefer higher quality. 4) Black Markets Due to shortages, goods may be exchanged illegally at a higher price.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Floors Governments occasionally intervene in the free market by creating a price floor, which is a minimum price buyers are required to pay.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Price Floors Governments occasionally intervene in the free market by creating a price floor, which is a minimum price buyers are required to pay. 1) The Price Floor A) Government may decide to raise prices to help producers. Price Floor One example of a price floor is the market for milk. The government sets a minimum price for milk in order to help America’s dairy farmers.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Price Floors Governments occasionally intervene in the free market by creating a price floor, which is a minimum price buyers are required to pay. 1) The Price Floor A) Government may decide to raise prices to help producers. Price Floor B) Price floors are only effective if placed above equilibrium. Notice how the equilibrium price is $1.00, but the price floor ensures that each gallon costs a minimum of $2.00. This is called a binding price floor. Equilibrium

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Price Floors Governments occasionally intervene in the free market by creating a price floor, which is a minimum price buyers are required to pay. 1) The Price Floor A) Government may decide to raise prices to help producers. B) Price floors are only effective if placed above equilibrium. C) Price floors cause surpluses. In this example, 1100 million gallons are supplied, but only 300 million are demanded. There is a surplus of 800 million gallons. Surplus

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Price Floors Governments occasionally intervene in the free market by creating a price floor, which is a minimum price buyers are required to pay. 1) The Price Floor A) Government may decide to raise prices to help producers. B) Price floors are only effective if placed above equilibrium. C) Price floors cause surpluses. In this example, 1100 million gallons are supplied, but only 300 million are demanded. There is a surplus of 800 million gallons. Surplus 2) Surpluses A) A surplus means demand is smaller than the supply.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Price Floors Governments occasionally intervene in the free market by creating a price floor, which is a minimum price buyers are required to pay. 1) The Price Floor A) Government may decide to raise prices to help producers. B) Price floors are only effective if placed above equilibrium. C) Price floors cause surpluses. In this example, 1100 million gallons are supplied, but only 300 million are demanded. There is a surplus of 800 million gallons. Surplus 2) Surpluses A) A surplus means demand is smaller than the supply. B) Market forces are unable to pull the price back to equilibrium.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Floors Are Inefficient Price floors cause a market to be inefficient because there are missed opportunities for transactions.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Floors Are Inefficient Price floors cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Suppliers who are willing to sell at a lower price are not able to do so. The minimum wage is considered a kind of price floor where workers are the supply. Employers are willing to hire more people but wages are too high.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Floors Are Inefficient Price floors cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Suppliers who are willing to sell at a lower price are not able to do so. Some agricultural products have price floors. The surpluses are either burned or are allowed to go bad before being thrown away. 2) Wasted Resources The resources used to create surpluses are essentially wasted.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Floors Are Inefficient Price floors cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Suppliers who are willing to sell at a lower price are not able to do so. International airfares used to be regulated with price floors. Airlines provided lavish in-flight service, but what people really wanted was cheap airfare. 2) Wasted Resources The resources used to create surpluses are essentially wasted. 3) Inefficiently High Quality Due to high prices, suppliers offer a high-quality product even though buyers prefer lower quality.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Floors Are Inefficient Price floors cause a market to be inefficient because there are missed opportunities for transactions. 1) Inefficient Allocation Suppliers who are willing to sell at a lower price are not able to do so. To get around the minimum wage law, workers who are desperate for a job are sometimes willing to be paid a lower wage under the table. 2) Wasted Resources The resources used to create surpluses are essentially wasted. 3) Inefficiently High Quality Due to high prices, suppliers offer a high-quality product even though buyers prefer lower quality. 4) Illegal Activity Due to surpluses, goods may be exchanged illegally at a lower price.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Quantity Controls Governments can also intervene in the free market by controlling quantity. A quota is the highest quantity of a good or service that can be supplied.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Quantity Controls Governments can also intervene in the free market by controlling quantity. A quota is the highest quantity of a good or service that can be supplied. Many fish in the United States are regulated through quotas. This means that fishermen must receive a license in order to catch a predefined amount of fish. 1) Government sets a quota limit by issuing licenses to suppliers.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Quota Quantity Controls Governments can also intervene in the free market by controlling quantity. A quota is the highest quantity of a good or service that can be supplied. Notice that the quota is 3,000 pounds of salmon. This is 2,000 pounds short of the equilibrium quantity. 1) Government sets a quota limit by issuing licenses to suppliers. 2) If the quota is less than equilibrium, a wedge is driven between the demand price and the supply price. Wedge

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Quota Quantity Controls Governments can also intervene in the free market by controlling quantity. A quota is the highest quantity of a good or service that can be supplied. When the quantity is 3,000 pounds of salmon, consumers are willing to pay $7 per pound while producers only want to charge $3 per pound. 1) Government sets a quota limit by issuing licenses to suppliers. 2) If the quota is less than equilibrium, a wedge is driven between the demand price and the supply price. Wedge 3) Buyers pay a higher price than the price received by the seller. Demand Price Supply Price

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. D S Quota Quantity Controls Governments can also intervene in the free market by controlling quantity. A quota is the highest quantity of a good or service that can be supplied. Consumers are charged $7. Because the license is a hot commodity, however, a license holder could sell the license for $4, which is the value of the wedge. 1) Government sets a quota limit by issuing licenses to suppliers. 2) If the quota is less than equilibrium, a wedge is driven between the demand price and the supply price. Quota Rent 3) Buyers pay a higher price than the price received by the seller. Demand Price Supply Price 4) The difference in prices is the quota rent -- the earnings made from the right to sell the good.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. The price ceiling for New York City apartments has helped keep prices low for people who actually have apartments.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. The price floor in the milk market has helped keep prices high for America’s dairy farmers. Price floors help suppliers make more money.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. Regulations on fishing ensure that seafood populations will not be fished out of existence. Price floors help suppliers make more money. Quantity controls may have environmental benefits.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. Ticket prices to professional sports events are generally low to ensure that even low-income consumers can occasionally go to a game. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Price controls can correct allocation problems.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. Because performers want to ensure a sold out show, ticket prices generally remain below equilibrium, causing shortages. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Price controls can correct allocation problems. Causes persistent shortages or surpluses.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. The oil crisis of the 1970s caused the U.S. government to set price ceilings on gasoline. People had to wait in long lines at the pump. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Price controls can correct allocation problems. Causes persistent shortages or surpluses. Resources are not allocated efficiently.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. Due to price ceilings in the concert ticket market, people find it very profitable to buy a bunch of tickets and resell them illegally at a higher price. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Price controls can correct allocation problems. Causes persistent shortages or surpluses. Resources are not allocated efficiently. Emergence of illegal and black market activities.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Pros and Cons of Price Controls ProsCons Price ceilings help keep prices low for consumers. Many of the price floors in agricultural markets are a result of powerful lobbyists who have convinced politicians to enact these laws. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Price controls can correct allocation problems. Causes persistent shortages or surpluses. Resources are not allocated efficiently. Emergence of illegal and black market activities. Special interest groups push for price controls for political reasons.

Last Slide Viewed ForwardBack End ShowResourcesTitle PageTable of Contents Copyright © 2013 N.S. Price Controls DIRECTIONS Use the graph at the bottom of the front page to answer the questions about the price controls for apartments in New York City. On the back side, use the graph to answer the questions about the price controls for corn. D S D S