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Chapter 6Chapter 6Chapter 6Chapter 6
Price Ceilings & Price Price Ceilings & Price FloorsFloors
04/10/23
©©1999 South-Western College Publishing
Principles of Economics2nd editionby Fred M Gottheil
PowerPoint Slides prepared by Ken Long
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Note, we only cover pages 126 to 133 in this chapter, just the material
on price ceilings and floors
Note, we only cover pages 126 to 133 in this chapter, just the material
on price ceilings and floors
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What is a Price Ceiling?What is a Price Ceiling?A maximum price set by
government below the market generated equilibrium price
©©1999 South-Western College Publishing
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D
S
P Shortage
A Price CeilingA Price Ceiling
44QDQS
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Why a Price Ceiling?Why a Price Ceiling?
When a price has been rising rapidly, often due to limited supply
©©1999 South-Western College Publishing
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What are the economic affects of a price ceiling?What are the economic
affects of a price ceiling?
The ceiling creates a shortage
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With a Price Ceiling what
determines who gets the product?
With a Price Ceiling what
determines who gets the product?
Queuing or some other form of rationing, such as coupons
©©1999 South-Western College Publishing
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What are some examples of Price Ceilings?
What are some examples of Price Ceilings?
World War IIRent control in some citiesGas in the late 1970’s
©©1999 South-Western College Publishing
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What is a Price Floor?What is a Price Floor?A minimum price set by
government above the market equilibrium price
©©1999 South-Western College Publishing
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D
SP Surplus
A Price FloorA Price Floor
1010QD QS
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What could justify a Price Floor?
What could justify a Price Floor?
To help suppliers of a specific good to get a higher price than otherwise would be the case
©©1999 South-Western College Publishing
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What could cause aLow Market Price?What could cause aLow Market Price?
An improvement in technology pushing the supply curve rightward, reducing price
©©1999 South-Western College Publishing
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S1
S2P1
Right Shift in SupplyRight Shift in Supply
P2
Q2Q1D
1133
©©1999 South-Western College Publishing
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What are the economic effects of a price floor?What are the economic effects of a price floor?
The floor creates a surplus
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What is one problem with Price Floors?
What is one problem with Price Floors?
What to do with the surplus
©©1999 South-Western College Publishing
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Examples of Price Floors?
Examples of Price Floors?
American agricultureThe minimum wage law
©©1999 South-Western College Publishing
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Agriculture web sitesAgriculture web sites
http://www.nal.usda.gov/bichttp://www.nal.usda.gov/ttichttp://www.fb.comhttp://www.ProgressiveFarmer.com
©©1999 South-Western College Publishing
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• What is a Price Ceiling?• What is a Price Floor?