Government Imposed Price ControlsThe government should make gas cheaper and minimum wage higher!

Most prices in the United States are set by the market Supply and demand determine

price Decision making is decentralized

—they are made by individuals and businesses

In Competitive Markets: Buyers compete with other buyers Sellers compete with other sellers Everyone who is willing and able to

buy at the market price gets the product

Everyone who is willing and able to sell at that price can sell it

Perfect Right?Not to everyone

Price Control

Sometimes lobbyists for producers can convince government officials that market prices are too low

Is Minimum Wage Too Low?

This is a generic budget that McDonald’s designed for its adult workers.

Write down your thoughts about living on this budget. Could you do it? Is it missing anything that you need?

PROBLEMS?Assumes one full-time and one part-time job!What about food?What about health insurance? (typically $200)What about gasoline? (typically $250)What about clothes?What about childcare?

What if Prices Are Too Low? A price floor is a legally enforced minimum

price for a product Price floors are set above the equilibrium

price

EOC study guide

Supply & Demand #8

Price Floor: Minimum Wage

Graph this: The equilibrium price of wages is

$7.25 an hour The government raises minimum

wage to $10.10 an hour What happens?

Price Floor

What market condition does a

price floor create?

Surplus

Price Control

Sometimes lobbyists for consumers can convince government officials that market prices are too high

When Prices are Too High A price ceiling is the legally enforced

maximum price that can be charged for a good or a service Price ceilings are below the equilibrium

price

EOC study guide

Supply & Demand #9

Price Ceiling: Gas

Graph this: The equilibrium price of gas is $2

for 10 million gallons per week Equilibrium price is $2.50 The price ceiling for gas is $1.50 What is the result?

Price Ceiling Cont. What market condition does a price

ceiling create?

Shortage Why? Because the price is set below

the equilibrium, thus there is more demand and less supply

Price Ceilings There are not many examples of

price ceilings in the U.S. today Rent control is used in some major

cities to keep rent low

Can be imposed during crises; wars, harvest failures, and natural disasters to stop sky-rocketing prices

If They Create Shortages and Surpluses, Then Why Do They Become Laws?

They sound like a good idea to the public

Politicians want to keep their constituents happy

Special interest groups push for them