PRICE FLOORS AND CEILINGS

SSEMI3 b: Explain and illustrate the effects of price floors and ceilings.

Price floors and ceilings

One common way to achieve social goals is to have the government set prices at “socially desirable” levels.

Price Ceiling

Price ceiling is the MAXIMIUM legal price that can be charged for a product

Purchased on Ticket Master

Purchased from

“Legitimate Scalper”

The Good-PC

How would a price ceiling on these tickets affect your

wallet?

The Good

Some cities like New York, have rent controls. This is an example of a price ceiling.

The Bad-PC

Because of the difference in Quantity supplied and Quantity demanded, price ceilings create shortages.

Shortage

Shortage: a situation where the quantity demanded > the quantity supplied at a given price

Price Floor

The LOWEST legal price that can be paid for a good or service

EX: Minimum wage

The Good-PF

Many people fought for minimum wage so that workers earn a fair amount.

The Bad-PF

Price Floors create surpluses, leaving many people without a job.

Surplus

Surplus: a situation in which the quantity supplied > the quantity demanded at a given price

Result: Suppliers have extra goods and services.

Think-Pair-Share

One common way to achieve social goals is to have the government set prices at “socially desirable” levels.

When this happens, prices are not allowed to adjust to their equilibrium levels, and the price system cannot convey accurate information to other buyers and sellers in the market.

What Does This Mean and

What is the problem with

this?Use Price Floors and

Price Ceilings to justify your

answer!