Table of Contents Access Prior Knowledge New Information Set Goals Activity Conclusion Market for Tickets “Price Ceilings and Price Floors” Targets Price Ceilings Price Controls “Price Ceilings and Price Floors” Targets Price Ceilings Are Inefficient Price Floors Price Floors Are Inefficient Quantity Controls Pros and Cons of Price Controls

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 Refer to the Lesson Plan document for instructions on how to make this Warm Up Activity a success. Each student will need one copy of the worksheet entitled “Market for Tickets.” An answer key is also included in the download.

Market for Tickets “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. Answer These Questions On Your Paper

Market for Tickets “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. POSSIBLE ANSWERS: The amount of demand for a particular concert exceeds the supply of tickets for that concert. No. It is actually in disequilibrium. There are not enough tickets to meet the demand at the given price level. 3) Many ideas are possible. Some may include allowing only real fans access to the tickets in some way, having multiple shows, or increasing the price of tickets. 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? Go to the Graph

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 $20 90 10 $40 80 20 $60 70 30 $80 60 40 $100 50 $120 $140 $160 $180 If you are projecting this slideshow onto a writeable surface (such as a whiteboard or SmartBoard), you can model how to complete this graph by writing directly on the board. Otherwise, use the “Draw Graph” button to complete the graph. Draw Graph Go to Conclusion

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 $60 per ticket. Draw this price ceiling on the graph. D S Price ($) Demand (thousands) Supply $20 90 10 $40 80 20 $60 70 30 $80 60 40 $100 50 $120 $140 $160 $180 Price Ceiling Draw Graph Go to Conclusion

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? D S Price ($) Demand (thousands) Supply $20 90 10 $40 80 20 $60 70 30 $80 60 40 $100 50 $120 $140 $160 $180 ANSWERS: 5) Price is $100 and quantity is 50,000. 6) Many ideas are possible. Some include she wants to make sure the show is sold out, she wants to reward her loyal fans, or she wants long lines of people competing with each other for tickets in order to show how popular she is. Price Ceiling

“Price Ceilings and Price Floors” Targets Knowledge Understand the effects of price ceilings and price floors. Reasoning Describe the positive and negative consequences of price ceilings and price floors.

Price Ceilings Governments occasionally intervene in the free market by creating a price ceiling, which is a maximum price sellers are allowed to charge. The numbers used here are for demonstration purposes only. They are not accurate to real life.

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 D S A) Government may decide to limit prices to help consumers. Price Ceiling Allow students time to draw these items onto the graph on their note sheets. 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.

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 D S A) Government may decide to limit prices to help consumers. Equilibrium B) Price ceilings are only effective if placed below equilibrium. Price Ceiling 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.

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 D S A) Government may decide to limit prices to help consumers. B) Price ceilings are only effective if placed below equilibrium. C) Price ceilings cause shortages. Shortage In this example, 5 million apartments are demanded, but only 2 million are supplied. There is a shortage of 3 million apartments.

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 D S A) Government may decide to limit prices to help consumers. 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. In this example, 5 million apartments are demanded, but only 2 million are supplied. There is a shortage of 3 million apartments.

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 D S A) Government may decide to limit prices to help consumers. 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. In this example, 5 million apartments are demanded, but only 2 million are supplied. There is a shortage of 3 million apartments. B) Market forces are unable to push the price back to equilibrium.

Price Ceilings Are Inefficient Price ceilings cause a market to be inefficient because there are missed opportunities for transactions.

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.

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. 2) Wasted Resources Consumers spend extra time and money dealing with shortages. Consumers who need an apartment in New York City end up spending a great deal of time and money looking for an available apartment.

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. 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. Because price ceilings limit a landlord’s revenue, he/she will often cut costs in undesirable ways, such as neglecting needed building maintenance.

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. 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. 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. 4) Black Markets Due to shortages, goods may be exchanged illegally at a higher price.

Price Floors Governments occasionally intervene in the free market by creating a price floor, which is a minimum price buyers are required to pay. The numbers used here are for demonstration purposes only. They are not accurate to real life.

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 D S A) Government may decide to raise prices to help producers. Price Floor Allow students time to draw these items onto the graph on their note sheets. 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.

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 D S A) Government may decide to raise prices to help producers. Price Floor B) Price floors are only effective if placed above equilibrium. 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.

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 D S A) Government may decide to raise prices to help producers. Surplus 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.

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 D S A) Government may decide to raise prices to help producers. Surplus B) Price floors are only effective if placed above equilibrium. C) Price floors cause surpluses. 2) Surpluses A) A surplus means demand is smaller than the supply. In this example, 1100 million gallons are supplied, but only 300 million are demanded. There is a surplus of 800 million gallons.

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 D S A) Government may decide to raise prices to help producers. Surplus B) Price floors are only effective if placed above equilibrium. C) Price floors cause surpluses. 2) Surpluses A) A surplus means demand is smaller than the supply. In this example, 1100 million gallons are supplied, but only 300 million are demanded. There is a surplus of 800 million gallons. B) Market forces are unable to pull the price back to equilibrium.

Price Floors Are Inefficient Price floors cause a market to be inefficient because there are missed opportunities for transactions.

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.

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. 2) Wasted Resources The resources used to create surpluses are essentially wasted. Some agricultural products have price floors. The surpluses are either burned or are allowed to go bad before being thrown away.

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. 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. International airfares used to be regulated with price floors. Airlines provided lavish in-flight service, but what people really wanted was cheap airfare.

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. 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 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. Due to surpluses, goods may be exchanged illegally at a lower price.

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.

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. 1) Government sets a quota limit by issuing licenses to suppliers. 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.

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. D S Quota 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 Notice that the quota is 3,000 pounds of salmon. This is 2,000 pounds short of the equilibrium quantity.

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. D S Quota 1) Government sets a quota limit by issuing licenses to suppliers. Demand Price 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. Supply Price 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.

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. D S Quota 1) Government sets a quota limit by issuing licenses to suppliers. Demand Price 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. Supply Price If this is true, then the logical question is: “what if the license holder does not sell his license to someone else but uses it himself?” If the license holder uses the license, he is in essence renting it to himself. Either way, he still makes the $4 per pound in rent. Thus, consumers pay $7 per pound even though the license holder only needs $3 per pound to supply the product. The other $4 per pound is the quota rent. 4) The difference in prices is the quota rent -- the earnings made from the right to sell the good. 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.

Pros and Cons of Price Controls

Pros and Cons of Price Controls 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.

Pros and Cons of Price Controls Price ceilings help keep prices low for consumers. Price floors help suppliers make more money. The price floor in the milk market has helped keep prices high for America’s dairy farmers.

Pros and Cons of Price Controls Price ceilings help keep prices low for consumers. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Regulations on fishing ensure that seafood populations will not be fished out of existence.

Pros and Cons of Price Controls Price ceilings help keep prices low for consumers. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Price controls can correct allocation problems. Ticket prices to professional sports events are generally low to ensure that even low-income consumers can occasionally go to a game.

Pros and Cons of Price Controls Price ceilings help keep prices low for consumers. Causes persistent shortages or surpluses. Price floors help suppliers make more money. Quantity controls may have environmental benefits. Price controls can correct allocation problems. Because performers want to ensure a sold out show, ticket prices generally remain below equilibrium, causing shortages.

Pros and Cons of Price Controls Price ceilings help keep prices low for consumers. Causes persistent shortages or surpluses. Price floors help suppliers make more money. Resources are not allocated efficiently. Quantity controls may have environmental benefits. Price controls can correct allocation problems. 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.

Pros and Cons of Price Controls Price ceilings help keep prices low for consumers. Causes persistent shortages or surpluses. Price floors help suppliers make more money. Resources are not allocated efficiently. Quantity controls may have environmental benefits. Emergence of illegal and black market activities. Price controls can correct allocation problems. 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.

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

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 These are the directions for the Class Activity that is included in the download. You may differentiate instruction by using the three different versions, or you may decide to simply use just one version for the whole class.

“Price Ceilings and Price Floors” Targets Knowledge Understand the effects of price ceilings and price floors. Reasoning Describe the positive and negative consequences of price ceilings and price floors.

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