1. Disequilibrium Government Intervention
Price Controls
Do they really work?
Or just political folly?

2. What is Disequilibrium?
Disequilibrium is when prices are not trading at equilibrium price.
Why? There are two main reasons:
Natural occurring shortages and surpluses
Government interferences

3. Why get involved? Unfairly high prices for Consumers
Unfairly low prices for Producers
Begin to feel political pressure to act

4. Price Floor: Look up Price is artificially set above Equilibrium
See page 113
Fig 6.6A

5. How is it Used? Push prices
It is used to prevent prices from going too low for producers to make any money.
Externality: causes a surplus and really does the opposite of what is intended
Surplus puts downward pressure on prices

6. Examples: Minimum wages Farm/Production Subsidies
Who is Supply and Who is Demand in job market?
Boss is Consumer of Labor = Demand
Worker is Producer of Labor = Supply
Price Floor
See p 113
Fig 6.6A

7. How does subsidy or price floor work?
Legally cannot pay workers below minimum wage
Creates surplus of workers at higher wages
Pay farmers/ manufacturers to grow/make certain things
Creates higher priced goods & Services
Corn for food or hybrid/ electric cars

8. Price Ceilings: Look Down
A price set artificially below the Equilibrium price.
Equilibrium
Price Ceiling

9. How is Ceiling used? Intented to push prices down
Used to prevent prices from going too high.
Externality; creates shortage of intended good or service.
Shortage puts upward pressure on prices

10. Example Housing : Rent Ceiling
Who is the Demand and Supply of Housing market?
Renters = Demand
Landlords = Supply
Price Ceiling
See p 113
Fig 6.6B