2. 1 Price Ceilings & Price Floors Price Floors

3. 2 What is a Price Ceiling? below the market A maximum price set by government below the market generated equilibrium price

4. 3 D S PcPc Shortage A Price Ceiling 3 QDQD QSQS P1P1 QeQe P Q

5. 4 Why a Price Ceiling? When a price has been rising rapidly, often due to limited supply, the government may want to help the consumers.

6. 5 What are the economic affects of a price ceiling? Lowers price, lower quantity The ceiling creates a shortage

7. 6 With a Price Ceiling what determines who gets the product? Queuing and line tickets Special groupings Favoritism Rationing, such as coupons

8. 7 What are some examples of Price Ceilings? World War II rationing Gas in the late 1970’s Rent control in some cities

9. 8 What is a Price Floor? above the market A minimum price set by government above the market equilibrium price

10. 9 D S PfPf Surplus A Price Floor QDQD QSQS P1P1 QeQe P Q

11. 10 What could justify a Price Floor? To help suppliers of a specific good to get a higher price than otherwise would be the case

12. 11 What could cause a Low Market Price? Supply factors: push the supply curve rightward, reducing price An improvement in technology Too many sellers

13. 12 What are the economic effects of a price floor? Raises price, lower quantity The floor creates a surplus

14. 13 What is one problem with Price Floors? What to do with the surplus?

15. 14 Examples of Price Floors? American agriculture The minimum wage law