Download to read offline
Uploaded byTravis Klein
Price floors and ceilings
The document discusses market inefficiencies caused by government interventions like taxes, regulations, monopolies, and external costs like pollution. It defines deadweight loss as the misallocation of resources and inefficiency caused by these market interferences. It provides examples of price ceilings, which set a maximum legal price and are intended to help consumers but can cause shortages and quality issues. Price floors set a minimum legal price and are intended to help producers but result in surpluses and inefficiency. The homework assignments involve analyzing price floor and ceiling examples through graphs and evaluating their costs and benefits.
More Related Content
Similar to Price floors and ceilings
Price floors and ceilings
- 1. Bellringer, verbal 1. Isequilibrium price always fair? 2. Think of an example when it might not be. Bade Chapter 7
- 3. Dead weight loss •Misallocation of market resources • In other words: inefficiency • Causes: 1. market interferences (taxes, regulation) 2. Incomplete information 3. Monopolies 4. External supply issues (IE: pollution)
- 4. Functioning market atEquilibrium
- 5. Problem with Market,price now at higher place B & C “DWL” • QS! • Q1 to Q2
- 7. With partners Say thegovernment, to help large families, made it illegal for the price to be higher than $0.10 per roll. 1.What would happen to the amount of toilet paper people would want to buy? 2.What would happen to the amount of toilet paper producers would want to sell? 3.What would happen to the number of sheets per roll? 4.What would happen to the texture of the toilet paper? 5.What other markets might be effected? (paper products?) 6.Who would get first chance at buying the toilet paper? 7.What would happen to the level of corruption in the country?
- 8. Surely no countrywould try this….
- 11. Price CeilingPrice Ceiling–– limit on howlimit on how high a price canhigh a price can gogo Price floorPrice floor – low– low limit on how lowlimit on how low a price can goa price can go Government Solutions!
- 12. Price CeilingPrice Ceiling Designedto helpDesigned to help consumersconsumers Illegal to chargeIllegal to charge higher than the pricehigher than the price VenezuelaVenezuela Example: RentExample: Rent ControlsControls Problems?Problems? QualityQuality ShortagesShortages
- 13. Price CeilingPrice Ceiling Designedto helpDesigned to help consumersconsumers Illegal to charge higherIllegal to charge higher than the pricethan the price Example: RentExample: Rent ControlsControls Problems?Problems? QualityQuality ShortagesShortages NYC Rent clipNYC Rent clip
- 14. Price FloorsPrice Floors Designedto help firmsDesigned to help firms Illegal to charge lower thanIllegal to charge lower than the pricethe price Example: Farmers during NewExample: Farmers during New DealDeal Problems?Problems? EfficiencyEfficiency SurplusesSurpluses
- 15. Price FloorsPrice Floors Designedto help firmsDesigned to help firms Illegal to charge lowerIllegal to charge lower than the pricethan the price Example: FarmersExample: Farmers during New Dealduring New Deal Problems?Problems? EfficiencyEfficiency SurplusesSurpluses
- 17. Homework • Complete thePrice Floor/Ceiling worksheet • Read British price floor example: 1.Draw a correctly labeled graph of what is happening. 2.Is this a good idea? 3.Is the DWL worth it in your opinion? 4.Would you vote for this price floor in the USA?