1. [ 3.7 ] Equilibrium and Price Controls

2. [ 3.7 ] Equilibrium and Price Controls
Learning Objectives
Explain how supply and demand create equilibrium in the marketplace.
Describe what happens to prices, quantities demanded, and quantities supplied when equilibrium is disturbed.
Identify two ways that the government intervenes in markets to control prices and restricts the use of individual property.
Analyze the impacts of price ceilings and price floors on the free market.

3. [ 3.7 ] Equilibrium and Price Controls
Key Terms
Equilibrium: The point of balance at which the quantity demanded equals the quantity supplied. At this point the market for a good is stable
Disequilibrium: occurs when quantity supplied is not equal to quantity demanded in a market
Shortage: also known as excess demand, occurs when the quantity demanded in a market is more than the quantity supplied.
Surplus: If the price of a good is too high, a surplus will occur. It exists when quantity supplied exceeds quantity demanded and the actual price of a good is higher than the equilibrium price.

4. Achieving Equilibrium
Market equilibrium is found at the price where quantity demanded equals quantity supplied. Analyze Data: How many slices are sold at equilibrium?

5. Achieving Equilibrium
When you go to the store to buy something—whether it’s a cellphone, a CD, or a pair of sneakers—you can usually find it. You are benefiting from the free market system at work. Businesses are making enough profit to produce and sell the goods you want at a price you are willing to pay.

6. Effects of Disequilibrium
If the market price or quantity supplied is anywhere but at the equilibrium, the market is in a state of disequilibrium. Disequilibrium occurs when quantity supplied is not equal to quantity demanded in a market. In Figure 3.17, disequilibrium occurs at any price other than $3 per slice and at any quantity other than 200 slices. Disequilibrium can produce one of two outcomes: shortage or surplus.

7. Effects of Disequilibrium
Shortage results when quantity demanded in a market exceeds quantity supplied. Analyze Graphs What is the shortage when pizza is sold at $2 per slice?

8. Effects of Disequilibrium
When a team keeps selling out all the seats to its games, it reflects a shortage of seats. Check Understanding What might the owner do to resolve this shortage?

9. The text says: “Industrial Real Estate Market”
Achieving Equilibrium
The text says: “Industrial Real Estate Market”
Analyze Political Cartoons How would you describe the relationship between supply and demand shown here?

10. Key Terms Part 2
price ceiling: The government can impose this on any product, it is a maximum price that can be legally charged for a good or service. The price ceiling is usually set below the equilibrium price.
rent control: A price ceiling places on apartment rent. It is used to prevent inflation during a housing crisis. It happened first in New York in the early 1940s. It still occurs
price floor: A minimum price the government can set on a product that can be paid for a good or service. Governments do this to ensure that sellers receive at least a minimum for their efforts.
minimum wage: This is a type of price floor. It is a set minimum price employers can pay for one hour of labor. The federal government has a set minimum wage but states can change it at their discretion. It is usually higher in most states (depending on inflation rate)

12. -32%
-9%
+61%
-23%
-31%
-41%

15. Rent control in Los Angeles
"There is a shortage of decent, safe and sanitary housing in the City of Los Angeles resulting in a critically low vacancy factor," begins Los Angeles' Rent Stabilization Ordinance, which was enacted in "This situation has had a detrimental effect on substantial numbers of renters in the City, especially creating hardships on senior citizens, persons on fixed incomes and low and moderate income households."
Back then the city's vacancy rate was 3.8 percent, according to a RAND Corporation study. In 2012, it was 3.9 percent, and it's expected to be lower when the numbers are released for this year. At the same time, rents are at all-time highs, having risen 25 percent between 2000 and 2012 alone in L.A. County.
The Rent Stabilization Ordinance, or "rent control" as it is usually known, limits how much landlords can raise rent to 3 percent this year in L.A. But generally it only applies to apartments built before October 1, 1978.
Eighty percent of the 880,581 multifamily units in the city of Los Angeles are covered by rent control, according to the Los Angeles Housing and Community Investment Department. Those living in rent controlled units pay an average of $1,612 a month, $602 less than the average market rate unit.

16. “I would die, but I have a rent-controlled apartment.”
Price Ceilings
Text says:
“I would die, but I have a rent-controlled apartment.”
Rent control limits price increases for rental housing. Analyze Political Cartoons What does this cartoon suggest about how some renters view rent control?

17. Price Ceilings
In these graphs, a price ceiling of $600 for rent-controlled apartments is below the equilibrium price. Analyze Graphs Why does rent control lead to a shortage of desirable apartments?

18. Price Floors
A minimum wage law can set the price of labor above the equilibrium price. Analyze Graphs In this graph, what happens to the supply of labor with a minimum wage of $7.25 per hour?

19. Price Floors
Many farmers in the United States rely on price supports or other government programs. Analyze Political Cartoons What seems to be happening to the farmer in this cartoon?

20. Price Floors
The U.S. government has supported milk prices by setting a price floor and buying the excess supply that results. Analyze Information What does the government do with the milk that it buys from farmers?

21. Minimum Wage Activity
Question: Should the Federal Government raise the minimum wage? (It is now $7.25, California is $10.50)
Task:
Read through the Pro/Con list for 10 minutes quietly (SSR)
Then take a stance. Write a paragraph expressing your response to the question above. Support your thoughts with evidence to support your claim. You can use the document as evidence or any other sources you may know of or want to look up. (minimum of 5 sentences, it can be more)
You will then use this paragraph to discuss in small groups what each of your stances were and do a mini debate/discussion once you all share out.
We will then come back as a class and discuss what each group talked about.