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September 27, 2013

September 27, 2013. Collect Current Event Finish Chapter 3 Notes: Ceilings and Floors Review HW. Government Set Prices. Sometimes government concludes that supply and demand will produce an equilibrium price that is unfair for buyer or seller…

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September 27, 2013

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  1. September 27, 2013 • Collect Current Event • Finish Chapter 3 Notes: Ceilings and Floors • Review HW

  2. Government Set Prices • Sometimes government concludes that supply and demand will produce an equilibrium price that is unfair for buyer or seller… • Price Ceiling: Maximum legal price a seller can charge. • Designed to help the consumer! • Must be below equilibrium price!!! • Leads to chronic shortage!!! 3-2 LO5

  3. Price ceilings Gasoline $3.50 a gallon in burdensome to low-income people P S $3.50 P0 ceiling 3.00 PC D Shortage Q Qs Q0 Qd • There is a lasting shortage of gasoline: Qd exceeds Qs • So what does the government do now? Ration coupons? • Many buyers are willing to pay above Pc…Black Market? • What about Rent Controls? 3-3 LO5

  4. Government Set Prices • Price Floors: minimum price set by the government above the market price • Designed to help the supplier! • Leads to chronic surpluses 3-4 LO5

  5. Price Floors Wheat P S Surplus floor $3.00 Pf Minimum Wage? P0 $2.00 D Qs exceeds Qd Constant Surplus Q Qd Q0 Qs Government can decrease supply, increase demand, or buy and dispose of excess product 3-5 LO5

  6. Sound the alarm • Economists go crazy when government tries to impose ceilings or floors… • Good intentions produce many negative side effects.

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