The document discusses price controls and their effects. There are two main types of price controls - price ceilings, which set a maximum price, and price floors, which set a minimum. Price ceilings typically benefit consumers but hurt producers, creating a shortage. Price floors typically benefit producers but hurt consumers, creating a surplus. Examples given are rent control, which is a price ceiling benefiting renters but hurting landlords, and minimum wage laws, which are a price floor benefiting some workers but potentially hurting employment levels.

1. “ What happens when the government gets involved?”

2. Give an example of prices that are unfair. Should the government do something about these prices?

3. There are two types of price controls - Price Ceilings and Price Floors

4. Price Ceiling - a maximum price that is allowed by law. Result of Price Ceiling: permanent shortage below equilibrium price

5. Price Floor - minimum price that is allowed by law. Result of Price Floor permanent surplus above the equilibrium price

6. Who gains and loses with price floors: 1. Gains - Producers 2. Loses - Consumers

7. Who gains and loses with price ceilings: 1. Gains - Consumers 2. Loses - Producers

8. Example of Price Ceiling Rent controlled apartments City or state determines the maximum amount that can be charged for rent on apartments.

10. P Q 0

11. P Q S 0

12. P Q S D 0

13. P Q S D P* Q* 0

14. P Q S D P* Q* 0 P ceiling Q s Q d Amount of Shortage

15. Example of Price Floor Minimum Wage Legislation The minimum wage is a lowest price the government will allow firms to pay for labor.

17. Wage # of Workers 0

18. Price/ Wage # of Workers S 0

19. Price/ Wage # of Workers S D 0

20. Price/ Wage # of Workers S D w* L* 0

21. Price/ Wage # of Workers S D w* L* 0 w floor L d L s Amount of Unemployed Workers