Distorting Market Outcomes Chapter 6 Section 3

FYI During the nation’s Great Depression, prices for farm products tumbled. Farmers lost much money, and many even lost their farms. At the same time, the farms produced surplus crops. To combat this, in 1933, the government passed the Agricultural Adjustment Act. In part, this act authorized payments to farmers who agreed to reduce the acreage they farmed. This effectively reduced the crop surplus and boosted farmer income.

Achieving equity and security usually requires policies that distort market outcomes. One way to achieve these goals is to set “socially desirable” prices, which interferes with the pricing system.

Setting price ceilings affects the allocation of resources.

The minimum wage is an example of a price floor.

Question Do you agree with economists who argue that the minimum wage actually contributes to unemployment rates? Why or why not?

Agricultural Price Supports Government loan support was offered in the 1930s to help stabilize agricultural prices. deficiency payments prevented the government from holding surplus food and had farmers sell their crops on the open market.

When Markets Talk Markets “talk” when prices move up or down dramatically.

Question Think of the last item you decided not to buy. What message did your decision send to the manufacturer?