Download - PRICE FLOORS AND CEILINGS SSEMI3 b: Explain and illustrate the effects of price floors and ceilings
PRICE FLOORS AND CEILINGS
SSEMI3 b: Explain and illustrate the effects of price floors and ceilings.
Price floors and ceilings
One common way to achieve social goals is to have the government set prices at “socially desirable” levels.
Price Ceiling
Price ceiling is the MAXIMIUM legal price that can be charged for a product
Purchased on Ticket Master
Purchased from
“Legitimate Scalper”
The Good-PC
How would a price ceiling on these tickets affect your
wallet?
The Good
Some cities like New York, have rent controls. This is an example of a price ceiling.
The Bad-PC
Because of the difference in Quantity supplied and Quantity demanded, price ceilings create shortages.
Shortage
Shortage: a situation where the quantity demanded > the quantity supplied at a given price
Price Floor
The LOWEST legal price that can be paid for a good or service
EX: Minimum wage
The Good-PF
Many people fought for minimum wage so that workers earn a fair amount.
The Bad-PF
Price Floors create surpluses, leaving many people without a job.
Surplus
Surplus: a situation in which the quantity supplied > the quantity demanded at a given price
Result: Suppliers have extra goods and services.
Think-Pair-Share
One common way to achieve social goals is to have the government set prices at “socially desirable” levels.
When this happens, prices are not allowed to adjust to their equilibrium levels, and the price system cannot convey accurate information to other buyers and sellers in the market.
What Does This Mean and
What is the problem with
this?Use Price Floors and
Price Ceilings to justify your
answer!