Price Floors and Ceilings SSEMI3 b: Explain and illustrate the effects of price floors and ceilings.

Price floors and ceilings One common way to achieve social goals is to have the government set prices at “socially desirable” levels.

Price Ceiling Price ceiling is the MAXIMIUM legal price that can be charged for a product

Purchased on Ticket Master

Purchased from “Legitimate Scalper”

How would a price ceiling on these tickets affect your wallet? The Good-PC How would a price ceiling on these tickets affect your wallet?

The Good Some cities like New York, have rent controls. This is an example of a price ceiling.

The Bad-PC Because of the difference in Quantity supplied and Quantity demanded, price ceilings create shortages.

Shortage Shortage: a situation where the quantity demanded > the quantity supplied at a given price

Price Floor The LOWEST legal price that can be paid for a good or service EX: Minimum wage

The Good-PF Many people fought for minimum wage so that workers earn a fair amount.

The Bad-PF Price Floors create surpluses, leaving many people without a job.

Surplus Surplus: a situation in which the quantity supplied > the quantity demanded at a given price Result: Suppliers have extra goods and services.

Think-Pair-Share One common way to achieve social goals is to have the government set prices at “socially desirable” levels. When this happens, prices are not allowed to adjust to their equilibrium levels, and the price system cannot convey accurate information to other buyers and sellers in the market. What Does This Mean and What is the problem with this? Use Price Floors and Price Ceilings to justify your answer!