PRICES & DECISION MAKING (PART THREE)

PRICE CEILINGS CONTINUED Some cities, such as New York City, have a long history of using rent controls to try to make housing more affordable. This is an example of a price ceiling, a maximum legal price that can be charged for a product.

The price ceiling, like any other price, affects the allocation of resources—but not in the way intended. The attempt to limit rents makes some people happy, until their buildings begin to deteriorate. Others, including landlords and potential renters on waiting lists, are unhappy from the beginning. Finally, some productive resources—those used to build and maintain apartments—slowly move out of the rental market.

PRICE FLOORS Other prices are sometimes considered too low, so the government takes steps to keep them higher. The minimum wage, the lowest legal wage that can be paid to most workers, is such a case. The minimum wage is in fact a price floor or lowest legal price that can be paid for a good or service.

THE MINIMUM WAGE Most economists argue that the minimum wage actually increases the number of people who do not have jobs because employers hire fewer workers at higher wages.

MINIMUM WAGE CONT. The basic argument in favor of the minimum wage is that it raises poor peoples’ incomes and provides a small measure of equity—one of our seven major economic and social goals.

WHEN MARKETS TALK Markets are impersonal mechanisms that bring buyers and sellers together. Although markets do not talk in the usual sense of the word, they do send signals in that they speak collectively for all of the buyers and sellers who trade in the market.

MARKET TALK CONT. Markets are said to “talk” when prices in them move up or down significantly in reaction to events that take place elsewhere in the economy.