1. Artificial Barriers Unit 6.3

2. Artificial Barriers –Your book looks at different scenarios at which there is an artificial barrier that prevents the market from getting to an equilibrium point. –These barriers can either fix the prices higher (Price Floor) or lower than the equilibrium point (Price Ceiling).

3. Price ceiling –A barrier that keeps the price lower than the equilibrium point is called a price ceiling, as prices are not allowed to go higher than the price ceiling. –An example of a price ceiling is rent control.

4. The Market for Gasoline with a Price Ceiling (a) The Price Ceiling on Gasoline Is Not Binding Quantity of Gasoline 0 Price of Gasoline 1. Initially, the price ceiling is not binding... Price ceiling Demand Supply,S1S1 P1P1 Q1Q1

5. The Market for Gasoline with a Price Ceiling (b) The Price Ceiling on Gasoline Is Binding Quantity of Gasoline 0 Price of Gasoline Demand S1S1 S2S2 Price ceiling QSQS 4.... resulting in a shortage. 3.... the price ceiling becomes binding... 2.... but when supply falls... P2P2 QDQD P1P1 Q1Q1

6. Rent Control in the Short Run and in the Long Run (a) Rent Control in the Short Run (supply and demand are inelastic) Quantity of Apartments 0 Supply Controlled rent Rental Price of Apartment Demand Shortage

7. Rent Control in the Short Run and in the Long Run (b) Rent Control in the Long Run (supply and demand are elastic) 0 Rental Price of Apartment Quantity of Apartments Demand Supply Controlled rent Shortage

8. Price floor –A barrier that keeps a price higher than the equilibrium point is called a price floor. In other words, the price cannot go lower than the price floor. –One example of a price floor is the minimum wage.

9. A Market with a Price Floor (a) A Price Floor That Is Not Binding Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Equilibrium quantity 2 Price floor Equilibrium price Demand Supply $3 100 The government says that ice- cream cones must sell for at least $2; this legislation is ineffective at the current market price.

10. A Market with a Price Floor (b) A Price Floor That Is Binding Quantity of Ice-Cream Cones 0 Price of Ice-Cream Cone Demand Supply $4 Price floor 80 Quantity demanded 120 Quantity supplied Equilibrium price Surplus 3

11. How the Minimum Wage Affects the Labor Market Quantity of Labor Wage 0 Labor Supply Labor surplus (unemployment) Labor demand Minimum wage Quantity demanded Quantity supplied

12. Minimum Wage Ideology These are contentious issues, where many businesses and economists claim that having a minimum wage destroys jobs and depresses the economy. Others feel that these claims are not entirely true, and that having a minimum wage improves the quality of life for low wage workers and can stimulate the economy.

15. Rationing Rationing is when the government limits the amount of a commodity that you can buy. This can be done by first come, first served, by lottery, or by coupon (as it was done in WWII). This can create incentives for people to go around the rationing and create a Black Market.