1. I-Pods
Price P1 E1 Q1
Qty

2. Price Floors & Ceilings
Government Price Controls in a Free Market?

3. Price Floor
A MINIMUM price set by the govt that is ABOVE market equilibrium; nothing can be sold below the given price

4. Raise the Minimum Wage to $800/hr
Benefits
Costs

5. . Minimum Wage: Gov’t Imposed Price Floor
New Minimum wage law set at 800/hr
Surplus of Supply S1 .
$800
Price Floor
$515 E1 D1
Min. Wage Workers

6. Price Ceiling
A MAXIMUM price set by govt that is BELOW equilibrium price; nothing can be sold above this price

7. Rent Control
Benefits
Costs

8. . Rent Control: Gov’t Imposed Price Ceiling
Price Ceiling imposed of $700 S1 .
$900 E1
Price Ceiling
$700 D1
Shortage of Supply
3,000
Apartments

9. Summary Price floors: (example: min. wage)
Above market equilibrium cause a surplus of supply
Below market equilibrium have no effect
Price Ceilings: (example: rent control)
Above market equilibrium have no effect
Below market equilibrium cause a shortage of supply

10. . MARIN & Min. Wage Marin Minimum wage is 675/hr S1 E1 $675 D1 $800
Price Floor
$675 D1
No Effect—(below market equilibrium)
Min. Wage Workers

11. PRICE FLOOR

13. . Price Ceiling Continued…. Price Ceiling imposed of $1200 S1 $1200 E1
No Effect—(Above Mkt. Equilibrium) S1 .
$1200
Price Ceiling
$900 E1 D1
3,000
Apartments