Manipulating Supply & Demand Price floors and ceilings

Price Ceilings A maximum legal price that can be charged for a product – Typically set below the equilibrium price – Used by governments to regulate prices of necessities Food Housing – Example: NYC apartments

Price Ceilings Impact – Creates a shortage Greater quantity demanded than quantity supplied – Creates waiting lists – Can lead to a black market – Makes goods/services more affordable

Price Floors A minimum legal price that can be charged for a product – Typically set above the equilibrium price – Used by governments to help suppliers of goods or services with low income – Example: Minimum wage, agricultural goods

Price Floors Impact – Creates a surplus Greater quantity supplied than quantity demanded – Makes goods/services more valuable

Quick Review 1.When a required minimum price for a good or service is set above the equilibrium price, this is known as a price _______________ 2.When a price ceiling is in place that is below the equilibrium price, this will create a: Shortage OR Surplus 3.A surplus will often times result from the implementation of a price ______________ floor