Price ceilings and floors set by governments distort the price signals in the market. Price ceilings that are set below the equilibrium price cause persistent shortages as they incentivize less production. Price floors set above the equilibrium price result in persistent surpluses as they incentivize overproduction. Special interest groups often advocate for these price controls.

1. 3d Price Ceilings and FloorsEPF 3. Demonstrate knowledge of the price system

2. Price Ceilings and FloorsGovernment-enforced price controls set above or below the equilibrium price distort price signals and incentives to producers and consumers. Price ceilings cause persistent shortages, whereas price floors cause persistent surpluses. Price controls are often advocated by special interest groups

3. What are govt-enforced price ceilings and price floors?Essential Question:

4. Price Ceilings A price ceiling sets the highest price that can be charged for a good or service. The price is generally set below the equilibrium price and results in a shortagePrice Floors A price floor sets the lowest price at which one can buy a good or service. Price floors are generally set above the equilibrium price and result in a surplusPrice Ceilings & Floors

5. Why might the govtinstitute a price ceiling or price floor?Essential Question:

6. Why Institute Examples:Rent control is an example of setting a price ceiling. Some cities instituted rent controls when housing prices were rising rapidly and current city residents could no longer afford rent. Milk support pricing is an example of setting a price floor. Government wanted to be sure that dairy farmers would be guaranteed a price high enough to keep them in business. Why institute a price ceiling or floor?

7. What are the effects of govt enforced price ceilngs and price floors?Essential Question:

8. Examples of Effects:Rent controls have resulted in a shortage of apartments because they require owners to accept a price that is lower than the equilibrium price. Rather than accept the low price, owners often convert the apartments to condominiums and sell them, thus decreasing the supply of available apartments.Milk controls: since the price is higher than the equilibrium price, consumers buy less milk and dairy farmers supply more milk, creating a surplus of milk. Effects of Price Ceilings and Floors