1. Social Goals v. Market Efficiency

2. How could economic and social goals conflict? -This is partially the reason government plays a role in the economy. In a market economy, the goal is freedom, efficiency, full employment, price stability, and economic growth -equity and security violate market economy norms because they assist businesses and help save some that may not be viable in the market -Is this intervention good or bad?

3. Distorting Market Outcomes Attempts are made to set prices at social desirable levels; markets do not reach their equilibrium levels -information cannot be transferred to the buyers and sellers Price ceilings- maximum legal amount to charge for a product -if authorities think that equilibrium price is too high, they can set price ceilings and lower the costs. -If this was the case and you were an owner of rent controlled apartments, what might you do? How might this affect the market for apartments?

4. Price Ceilings -owner may change apartments to other things -there will be a shortage -owner may change quality of apartments

5. Price Floors Some prices are considered too low; government regulates lowest prices for which something can be sold -minimum wage is an example: lowest price that can be paid for a service; this can lead to a surplus of workers; How? -some economists argue that minimum wage can lead to higher unemployment; Why? -Is minimum wage a good or bad thing? Explain. -Is minimum wage irrelevant?

6. Agricultural Price Supports 1930s the federal government created the Commodity Credit Corporation (CCC) to stabilize agricultural prices -Farmers would get loans from the government for crops according to the price floor for the products -farmer would pledge his crops is a form of security in return -farmer could use proceeds from the crop to repay the loan or let the government take the crop as payment -The loan – nonrecourse loan – there is no penalty if not paid back

7. Problem – Government would take portion of crop not sold as payment; there was a great deal of wasted food Government started offering deficiency payments; farmers offer crop at cheap prices so most of the supply is purchased and the government will pay the farmer the difference between the market price and target price; More people get food Government doesn’t have to dispose of surplus

8. Since then, the U.S. passed the Federal Agricultural Improvement and Reform Act (FAIR) of 1996 where the government just offers cash payments to farmers. Farm Bill of 2002 provides additional money to farmers