I-Pods Price P1 -------------- E1 ------------- Q1 Qty.

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Presentation transcript:

I-Pods Price P1 -------------- E1 ------------- Q1 Qty

Price Floors & Ceilings Government Price Controls in a Free Market?

Price Floor A MINIMUM price set by the govt that is ABOVE market equilibrium; nothing can be sold below the given price

Raise the Minimum Wage to $800/hr Benefits Costs

. Minimum Wage: Gov’t Imposed Price Floor New Minimum wage law set at 800/hr Surplus of Supply S1 . $800 Price Floor $515 E1 D1 Min. Wage Workers

Price Ceiling A MAXIMUM price set by govt that is BELOW equilibrium price; nothing can be sold above this price

Rent Control Benefits Costs

. Rent Control: Gov’t Imposed Price Ceiling Price Ceiling imposed of $700 S1 . $900 E1 Price Ceiling $700 D1 Shortage of Supply 3,000 Apartments

Summary Price floors: (example: min. wage) Above market equilibrium cause a surplus of supply Below market equilibrium have no effect Price Ceilings: (example: rent control) Above market equilibrium have no effect Below market equilibrium cause a shortage of supply

. MARIN & Min. Wage Marin Minimum wage is 675/hr S1 E1 $675 D1 $800 Price Floor $675 D1 No Effect—(below market equilibrium) Min. Wage Workers

PRICE FLOOR

. Price Ceiling Continued…. Price Ceiling imposed of $1200 S1 $1200 E1 No Effect—(Above Mkt. Equilibrium) S1 . $1200 Price Ceiling $900 E1 D1 3,000 Apartments

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