Price Controls

Price Ceiling

A legally established maximum price sellers can charge for a good or resource.

Price Floor

A legally established minimum price buyers must pay for a good or resource.

How would a price ceiling of $10 affect a market with a price of $5, quantity supplied as 10, and quantity demanded as 19?

A price ceiling of $10 wouldn't affect it.

How does a price floor affect the amount of consumer surplus in a market?

Consumer surplus decreases

Minimum Wage

Legislation requiring that workers be paid at least the stated minimum hourly rate of pay.

What type of price control tends to lead to consumers waiting to buy the product?

Price ceiling

What type of price control tends to lead to lower quality products?

Price ceiling

What type of price control tends to lead to sellers discriminating against buyers?

Price ceiling (shortage)

Other than crating shortages and surpluses, what are other effects of price controls?

Price ceiling and price floor. Ex: minimum wage and rent control.

How would a price floor of $10 affect a market with a price of $5, quantity supplied as 10, and quantity demanded as 19?

Supply would increase in supply and decrease in demand. It would cause a surplus.

Does a price floor tend to cause a shortage or surplus in the market?

Surplus

Rent Control

System of laws, administered by a court or a public authority, which aim to ensure the affordability of housing and tenancies on the rental market for dwellings.

Assume that a price floor of $9 was imposed on the market with a price of $5, quantity supplied as 10, and quantity demanded as 19. How much would it cost the government to buy up the surplus caused by the price floor?

19-11= $8

Surplus

A condition in which the amount of a good offered for sale by producers is greater than the amount that buyers will purchase at the existing price.

Shortage

A condition in which the amount of a good offered for sale by producers is less than the amount demanded by buyers at the existing price.

How would a price floor of $5 affect a market with a price of $5, quantity supplied as 10, and quantity demanded as 19?

A price floor of $5 wouldn't affect it.

Would a price ceiling of $5 create a surplus or a shortage? How large of a surplus or shortage?

A shortage 19-10=9

Is the shortage caused by government price controls larger if the demand in the market is elastic or inelastic?

Elastic

Is the shortage caused by the government price controls larger if the supply in the market is elastic or inelastic?

Elastic

Is the surplus caused by government price controls larger if the demand in the market is elastic or inelastic?

Elastic

Is the surplus caused by government price controls larger if the supply in the market is elastic or inelastic?

Elastic

How does minimum wage affect the market for unskilled labor?

Fewer low-skilled workers will be hired when minimum wage pushes wages up. Higher unemployment rates.

Price Controls

Government-mandated prices that are generally imposed in the form of maximum or minimum legal prices.

What type of price control tends to lead to black markets?

Price floor

What type of price control tends to lead to buyers discriminating against sellers?

Price floor (surplus)

How does a price ceiling affect the amount of producer surplus in a market?

Producer surplus decreases

Assume that price controls created a surplus of widgets. Given this price control, how would an improvement in widget technology affect the production of widgets, the consumption of widgets, and the size of the surplus?

Production would increase, consumption would increase, and surplus would increase.

Doe a price ceiling tend to cause a shortage or surplus in the market?

Shortage

How does rent control affect rental housing markets?

Shortages and black markets Supply will decline Quality will deteriorate Nonprice methods of rationing will become more important Inefficient use of housing space will result

Resource Market

The market for inputs used to produce goods and services.

How would a price ceiling of $5 affect a market with a price of $5, quantity supplied as 10, and quantity demanded as 19?

The market price cannot be more than $5. Demand will increase and supply will decrease.