Price Ceilings

1
Chapter 7

• Price Ceilings
• Price Floors
• Quotas

2
Examples of Price Ceilings

• Rent controls in the housing market
• Science/Math teacher shortage in the public
  schools
• Blood
• Wage-Price Controls
• Gasoline
• Wages

3
Price Ceiling
Price
S
P0
Pc
D
Q0
Quantity
Qs
QD
4
Effects of Rent Controls

• Apartments rents are below equilibrium and the
  number of apartments is smaller than in
  equilibrium
• Apartments are hard to find
• Landlords are unwilling to do maintenance
• Inefficiency and deadweight losses
• Are rent controls fair?

5
Price Ceilings
Price
S
ShortageQD-Qs
P0
Pc
D
Q0
Quantity
Qs
QD
6
Price Ceilings-Rent Controls
Price
S
Pc
D
Qs
QD
7
Examples of Price Floors

• Wheat (and other agricultural products)
• Minimum wage laws

8
Price Floor
S
Price
Pf
P0
SurplusQs-QD
D
Quantity
Q0
QD
Qs
9
Effects of Minimum Wage Laws

• Wages are higher than in equilibrium. Quantity
  of labor supplied is larger than in equilibrium.
  More people want to work than businesses want to
  hire.
• Harder to find a job

10
Price Floor
S
Price
Pf
P0
D
Quantity
Q0
QD
Qs
11
Price Floor
S
Price
Pf
P0
D
Quantity
Q0
QD
Qs
12
Effects of Minimum Wage Laws (continued)

• Inefficiencies and deadweight losses
• Fairness?
• Who gains?
• Who loses?

13
Examples of Quotas

• Sugar beets
• Tobacco
• Cotton
• Chemicals

14
Quotas
P
S
Pq
P0
D
Q
Qq
Q0
15
Effects of Quotas
P
S
P0
D
Q
Qq
Q0
16
Quotas
P
S
P0
D
Q
Qq
Q0