1 / 18

Price Controls

Price Controls. What you will learn. Maximum price control. Minimum price control. Take this challenge. Maximum price control. A price ceiling on a good is imposed when the government sets a limit on the _________ price that sellers can charge. maximum. Examples:. Bus fares.

bart
Download Presentation

Price Controls

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Price Controls

  2. What you will learn ... Maximum price control Minimum price control Take this challenge

  3. Maximum price control A price ceiling on a good is imposed when the government sets a limit on the _________ price that sellers can charge. maximum Examples: Bus fares Taxi fares

  4. Price S Price ($) Price ($) Qd Qd Qs Qs 12 14 16 18 20 12 14 16 18 20 660 630 600 570 540 660 630 600 570 540 480 540 600 660 720 480 540 600 660 720 16 D Quantity 600 0 Q Maximum price control Effects: What are the equilibrium price, quantity transacted and total revenue?

  5. Price S Price ($) Price ($) Qd Qd Qs Qs 12 14 16 18 20 12 14 16 18 20 660 630 600 570 540 660 630 600 570 540 480 540 600 660 720 480 540 600 660 720 16 12 D Quantity 480 660 600 0 Maximum price control Effects: Suppose the government imposes a price ceiling of $12 per unit.

  6. Price S 16 D Quantity 600 0 Maximum price control Effects: decrease The price will ________ (from ____ to ____ ). $16 $12 At a price of $12, the quantity demanded is greater / smaller than the quantity supplied. 12 There is a shortage of ____units. 480 660 180

  7. Price S 16 D Quantity 600 0 Q Maximum price control The quantity transacted will _________________. Effects: decrease to 480 units The total revenue will increase / decrease to _________________. $5,760 (=$12 x 480) A ___________ , where the price is ______ than the regulated price, may emerge. black market 12 higher 480 660 What if the price ceiling is imposed above the equilibrium level? Answer

  8. Maximum price control Non-price methods of rationing: First-come, first-served ___________________ Provision of public clinic services

  9. Maximum price control Non-price methods of rationing: First-come, first-served ___________________ By ability ________ Allocation of places in universities

  10. Maximum price control Non-price methods of rationing: First-come, first-served ___________________ By ability ________ By sellers’ preference By need _______ Beds in public hospitals

  11. Maximum price control Non-price methods of rationing: First-come, first-served ___________________ By ability ________ By sellers’ preference By need _______ By drawing lots ______________ Flats under the Home Ownership Scheme

  12. Filipino maids enjoy a minimum wage protection in Hong Kong. Minimum price control A price floor on a good is imposed when the government sets a limit on the ________ price that buyers will pay. minimum Example:

  13. Price S Price ($) Price ($) Qd Qd Qs Qs 8 9 10 11 12 8 9 10 11 12 600 570 540 510 480 600 570 540 510 480 420 480 540 600 660 420 480 540 600 660 10 D Quantity 540 0 Q Minimum price control Effects: What are the equilibrium price, quantity transacted and total revenue?

  14. Price S Price ($) Price ($) Qd Qd Qs Qs 11 8 9 10 11 12 8 9 10 11 12 600 570 540 510 480 600 570 540 510 480 420 480 540 600 660 420 480 540 600 660 10 D Quantity 510 600 540 0 Minimum price control • Effects: Suppose the government imposes a price floor at $11 per unit.

  15. Price S 10 D Quantity 540 0 Minimum price control • Effects: The price of the good will _____________. increase to $11 At a price of $11, the quantity demanded is greater / smaller than the quantity supplied. 11 There is a surplus of ____ units. 510 600 90

  16. Price S 10 D Quantity 540 0 Minimum price control • Effects: The quantity transacted will _________________. decrease to 510 units The sellers’ total revenue may increase or decrease, depending on the ______ _________________. 11 price elasticity of demand If the demand is elastic, the total revenue will _______. 510 600 decrease Gain Loss

  17. Take this challenge 1 Suppose the supply of a good is fixed and there is an effective maximum price control. If the government raises the price ceiling, what are the effects on: (a) the quantity transacted of that good? Answer (b) the total revenue of sellers? Answer

  18. Take this challenge 2 Suppose the government lowers the minimum wage rate of Filipino maids. (a) What will the effect be on Filipino maids’ average waiting time for obtaining a job in Hong Kong? Answer (b) What will the effect be on the employment of local domestic servants? Answer

More Related