The document discusses government intervention in markets through price ceilings and price floors. A price ceiling sets a maximum legal price for essential goods to make them affordable for consumers, with an example given of rent control apartments. A price floor sets a minimum legal price for goods to support producers, with an example of farm subsidies. The effects of rent control are shown to be excess demand and a reduced quantity and quality of housing. The effects of farm subsidies are excess supply. In general, price ceilings lead to shortages while price floors lead to surpluses.

1. Government Intervention
 While markets tend toward equilibrium, in
some cases the government steps in to control
prices.
 The government can impose a Price Ceiling or
a Price Floor in order to regulate prices.

2. Necessary Items that are
expensive

3. PRICE CEILINGS
 A price ceiling is a maximum price that can
legally be charged for a good.
 The government places price ceilings on some
goods that are considered “essential” and
might become too expensive for consumers.
 Example: rent control apartments

4. Price Ceilings are meant to help
the consumer.

5. The Effects of Gov’t Intervention
With Rent Control – Excess Demand
$1500
1200
900
600 RENT
CONTROL
300
10 20 30 40 50 60

6. Write down effects of rent control you
see from the video

7. PRICE FLOORS
• A price floor is a minimum that can
legally be charged for a good.
• The government sets price floors when
it wants sellers to receive a minimum
price
• Example: Farm Subsides sometimes
the government will buy excess crops
when the price falls below a certain
limit, now they provide emergency
financial aid to farmers

8. Price Floors are meant to help the
Producer.

10. The Effects of Rent Control
With Farm Subsides- Excess Supply
$1500
1200
900
600
300
10 20 30 40 50 60

11. Price
P1
Label a price ceiling and a price floor on
the above graph.
Quantity
Q1

13. BASICALY
Price Ceilings lead to
Shortage.
Price Floors lead to
Surplus.

14. The Effects of Price Ceilings – Rent
Control
 Reduces quantity and quality of housing
 Results in Excess Demand [Shortage] that
cannot be corrected by the market
 Landlords cannot earn profits, therefore they
will try to cut costs
Summary: the costs of Rent Control outweigh
the benefits.

15.  Based on the video, do you believe that farm
subsides are fair?

16. Minimum Wage
 Do you think the federal minimum wage is a
price floor or a price ceiling for wages?