PRICE CEILINGS & PRICE FLOORS

Government Interference

Interfere with market

operations to protect

society or a part of society

from harm

Price Floor

Lowest legal price that can be charged

for a good or service

Meant to protect sellers if prices are too

low to cover costs

Price Floor

Price Floor

Examples:

Agriculture and Food Industry

milk

Price Floor

If there is a surplus, what can we do?

Distribution will be expensive process that will paid by the

taxpayer

Price Floor

How can we increase market equilibrium?

DEMAND

How?

Price Floor

How else can we increase market equilibrium?

SUPPLY

How?

Farm Conservation Subsidies

Reduce the surplus by paying

farmers NOT to produce product

Price Ceiling

Maximum legal price that can be

charged for a good or service

Meant to protect buyers if prices are too

high on products everyone needs

Price Ceiling

Price Ceiling

Examples:

Housing & Energy

Rent in NYC Gas Prices

Price Ceiling

If there is a shortage, what can we do?

Ration

Black Market

Long lines at the pump

Price Ceiling

After 9/11

Negotiations were made

to cap gas at $2.50 to

prevent price gouging

Price Ceiling

How can we decrease market equilibrium?

DEMAND

How?

Price Ceiling

How else can we decrease market equilibrium?

SUPPLY

How?