1 Homework: Unit 2 Test (Ch 4, 5 and 6) next Thursday FrontPage: Should government do something when gas prices rise too high?

Homework: Unit 2 Test (Ch 4, 5 and 6) Thursday FrontPage: Do you support the idea of a “minimum wage? Why or why not? 2 When you come to a fork in the road....Take it. You can observe a lot by just watching. Nobody goes there anymore because its too crowded. If you don't know where you are going, you might wind up someplace else. In theory, there is no difference between theory and practice. In practice there is. Life [Baseball] is ninety percent mental and the other half is physical. Always go to other people's funerals, otherwise they won't come to yours. When asked whether fans that ran on the field naked were men or women – “I don’t know…they had bags on their heads.” Quotes to live by: Yogi Berra

Homework: Unit 2 Test (Ch 4, 5 and 6) Friday FrontPage: NNIGN 3

Government Intervention in the Price System Chapter 6, Section 3

Why does government get involved in the economy? Some believe that in order to make sure people have access to some goods or services, or to ensure a surplus of certain vital goods, government passes rules that interfere with the market Rules and regulations, subsidies, price ceilings, price floors and rationing are ways that government gets involved in the economy.

What do YOU think? AgreeDisagree Scenario ?? Because they are necessary, the government should not permit doctors charge more than $25 for an office visit. ?? The government should set a max price for electricity and gas used for heat, because people need these regardless of how much they cost. ?? There should be a limit on the amount cell phone companies charge for data, because many people need a cell phone but can’t afford one.

What do YOU think? AgreeDisagr ee Scenario ??Dairy farmers should be guaranteed a minimum price for their milk to make sure we have a good supply. ??If gasoline prices get too high, the government should set a limit on them, because gasoline is so important to so many people in our nation. ??The minimum wage should be higher, so that adults and students working at those jobs can afford to live on their salary.

Supply and Demand Base Graph Price Quantity P1P1 Q1Q1 Supply 1 Demand 1 Equilibrium 1

Quantity of Apartments (in 10,000’s) Monthly Rent ($) Equilibrium Price = Equilibrium Quantity = $ ,000 S D

Quantity of Apartments (in 10,000’s) Monthly Rent ($) Equilibrium Price = Equilibrium Quantity = $ ,000 S D

Quantity of Apartments (in 10,000’s) Monthly Rent ($) Shortage D S

Price per Bushel ($) Quantity of Bushels (in 100,000’s) Equilibrium Price = Equilibrium Quantity = S$5 1,700,000 D

Price per Bushel ($) Quantity of Bushels (in 100,000’s) Equilibrium Price = Equilibrium Quantity = S 1,700,000 D $5

Price per Bushel ($) Quantity of Bushels (in 100,000’s) Surplus S D

Price ceiling A maximum price for a good or service Rent control, cap on gas prices, or tickets for a sporting event might be examples The result is often a shortage of the good intended to be made more available and less expensive

Rent control and shortages

Price floor Sometimes the government intervenes in the market to increase income to certain producers, or guarantee a basic, “living” wage to workers For example, the government might require a certain minimum price for milk, corn or other agricultural products ▫The goal of price floors like these is to encourage farmers to produce a surplus of products

Price floors and surpluses If price is set above what market wants, a surplus will occur If price is set below what market wants, the floor will be ineffective

Minimum wage as a price floor

Rationing and black markets Sometimes, governments will decide who gets certain items instead of the market ▫The US government did this during WWII to ensure that enough resources could be directed to the war effort ▫Sugar, rubber, gasoline, butter, coffee and nylon were all rationed, among other products Purpose is to allocate resources on a limited basis to people One unintended effect is the creation of a black market for goods which are rationed ▫An illegal market for goods which are bought and sold in violation of price controls or rationing

Practice with Ceilings and Floors