1. Social Goals vs. Market Efficiency
Econ 10/5

2. Warm Up
For each scenario: (1) Draw a generic supply and demand graph; (2) shift supply or demand on the graph; and (3) describe what happens to the price and quantity.
Market: ink pens
Scenario: The price of ink increases.
Scenario: Teachers say that only ink pens can be used in class.
Scenario: The pen company found a more efficient way to make pens.

3. Price Controls
Price Control: a government regulation establishing a maximum or minimum price to be charged for specified goods and services, especially during periods of war or inflation
Two types:
Price Ceilings
Price Floors

4. Price Controls Why have price controls? Equity and security
We give up efficiency and freedom to be more “fair”
Once we have them it is hard to remove them
Politics
Price controls do not allow prices to adjust to equilibrium levels

5. Price Ceilings
Price Ceiling: prices cannot legally exceed the upper limit
Example: rent control in NYC
Imposed ceiling: price falls to Pceiling, quantity supplied is less than quantity demanded = SHORTAGE

6. Price Ceilings
Price ceilings benefit the consumer because the price is lower than what they would normally pay
Are consumers better off? Maybe not
Apartments may be converted to something else (office space, torn down and sold etc).
There is high consumer competition because there is a shortage
Are producers better off? Definitely no
Total revenue is decreased
No incentive to add more units or fix up units

7. Price Floor
Price floors: prices cannot legally fall below imposed limit
Example: Minimum wage, agricultural products
Price above equilibrium  quantity supplied exceeds quantity demanded = SURPLUS