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Market Equilibrium = Q.D. = Q.S.
Price Quantity Price Quantity Price Quantity S S 23 D D 15
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Shortage Surplus Demand > Supply Supply > Demand
Price Quantity Price Quantity S S D D
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Price Ceiling Effective Non-Effective Price Price P.C. P.C. Quantity
Can not Sell Above It Effective Non-Effective Shortage (Left Graph) Limiting factor: supply Government trying to help consumers Price Quantity Price Quantity P.C. P.C.
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Price Floor Non-Effective Effective Situations Price Price P.F. P.F.
Can not Sell Below It Non-Effective Effective Situations Surplus (Right Graph) Limiting factor: Demand Government trying to help businesses Price Quantity Price Quantity P.F. P.F.
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Rent Controls & Affordable Housing
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Situation 1 Imagine that the voters in your city are going to vote on a law that would (1) roll back all rents on houses and apartments to the levels of two years ago and (2) freeze rents at those levels. At the many meetings held on this proposal, citizens have argued furiously.
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Proponents “Rents are too high for people on fixed incomes like my husband and me. With prices going up and up, our pension and social security checks just aren’t enough. Everyone should have the right to decent housing. We have worked all our lives. Now all we ask is that rents be kept at an affordable level. That’s the fair thing to do.”
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Opponents “Rent controls cause housing shortages, and housing shortages allow rental property owners to discriminate against any group they think is undesirable-families with children or pets, minorities, senior citizens. Also, with rent controls, the rent the owners get over a period of years won’t be enough to maintain many older apartments and houses properly. This will lead to blighted neighborhoods. If access to housing is the problem, raising the incomes of poor people-not rent controls-is the answer.”
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Questions What is the issue?
Price Quantity What is the issue? Draw supply and demand graph that illustrates the issue. Does the issue involve a price floor, price ceiling, or neither? What broad social goals should you consider as you decide how to vote on the issue? What are some alternative means of achieving these goals? What are some advantages of each alternative? Be sure to consider who wins and who loses by each alternative. How would you vote on the issue? Why?
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The Minimum Wage & Unemployment
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Situation 2 Imagine you are a member of U.S. House of Representatives. You must decide whether to vote YES or NO on a bill that would raise the minimum wage. In committee hearings on the bill, you heard testimony from people who favor the increase and from people who oppose it.
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Proponents “We are experiencing high inflation. The minimum wage must increase accordingly. Otherwise the working poor will receive wages that are miserably below what is needed to provide food, housing, and other necessities. Every worker has the right to earn a decent, living wage. The present minimum wage is too low and is therefore unjust and unfair.”
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Opponents “The minimum wage should be allowed to expire. It creates unemployment, especially among disadvantaged minorities and teenagers. It creates incentives for businesses to substitute machines for people. People without jobs are worse off than people with low-paying jobs. This is particularly true for teenagers. Teenage unemployment is much higher than adult unemployment. One of the reasons is the minimum wage, businesses would rather hire older people who are more skilled or who have more working experience. Such hiring decisions tend to discriminate young African-Americans who, on the average, have less education and fewer skills than their white counterparts. Don’t raise the minimum wage, eliminate it. “
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Questions What is the issue?
Price Quantity What is the issue? Draw supply and demand graph that illustrates the issue. Does the issue involve a price floor, price ceiling, or neither? What broad social goals should you consider as you decide how to vote on the issue? What are some alternative means of achieving these goals? What are some advantages of each alternative? Be sure to consider who wins and who loses by each alternative. How would you vote on the issue? Why?
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