1. Prices as a System Prices help consumers and producers make decisions
Tells sellers where to sell and consumers where to buy
Prices serve as signals
Allocate resources between markets
Can impact many markets

2. Fixed Prices Why are prices fixed?
Special interest groups influence government policies
Economists believe the costs of fixed price often outweighs the benefits

3. Price Ceilings Price Floors
Lowest legal price
Ex. Minimum wage
Can decrease demand
Maximum legal price that can be charged
Result in shortages
Prices no longer allocate resources
Threatens profits of supplier
Positive for people who receive the good
Negative for those who do not

4. Predicting Prices Use models to explain and predict
Predict changes in supply
Ex. Agriculture
Factor in demand elasticity
Considered with a change in supply
Illustrate possible changes in demand
Ex. Gold

5. Agricultural Price Supports
Government will try to stabilize prices
Use loan supports and deficiency payments in the 1930s Commodity Credit Corporation
Loan Supports
Put crop up as security
Repay loan after selling crop, or give crop and keep loan money
If unable to repay, they just forfeit the crop
Non-recourse loan
Creates large stockpiles of food

6. Agricultural Price Supports
Deficiency Payments
Encouraged farmers to sell on the open market
CCC would make up payment differences between actual price and target price
Reforming Price Supports
Federal Agricultural Improvement and Reform Act – 1996
Cash payments took place of price supports and deficiency payments
LDP – Loan Deficiency Payment