CHAPTER 6, SECTION 3 The Price System at Work
Feb 08, 2016
CHAPTER 6, SECTION 3The Price System at Work
FIXED PRICES The PRICE of a good or service is
set by the Government Also called “Price Controls” or
“Price Fixes” Typical in Command Economies,
like North Korea or the former Soviet Union
Supply and demand DO NOT influence price
A Price Ceiling Makes High Prices Illegal
Ceiling – highest point in a room
Price Ceiling = MAX
the MAXIMUM price that may be legally charged for something
A Price Ceiling Makes High Prices Illegal
If the Price Ceiling is set too low, what happens?
Low Price means consumers will buy a lot
Price Ceilings that set prices too low will create SHORTAGE
Fixed Prices prevent an upward price adjustment
Rent Control – a Price Ceiling (CA, NY) State
government legally imposes below-market rates for rental housing
Consumers like low rent
Diminishes incentives for Landlords who cannot profit as much
Seinfeld Video – Rent Control
http://criticalcommons.org/Members/Ghent/clips/the%20apartment_rent%20control.mp4/view
Begin video at 1:24
A Price Floor Makes Low Prices Illegal
FLOOR – lowest point in a room
Price Floor = MINIMUM
the MINIMUM price that may be legally charged for something
A Price Floor Makes Low Prices Illegal
If the Price Floor is set too high, what happens?
High Price means consumers will not buy a lot
Price Floors that set too high a price will create SURPLUS
Fixed Prices prevent a downward price adjustment
MINIMUM WAGE – a Price Floor State
government legally imposes above market rates for labor
Employees want high wages
Employers (who BUY labor) don’t like “high prices” for labor, so hire fewer people
Quick WriteSHOULD THE U.S. GOVERNMENT IMPOSE A PRICE CEILING ON THE SALE OF GASOLINE IN THE UNITED STATES?
Why or why not?
Gas Prices: What might happen if the US government set a Price Ceiling on Gasoline below its actual value?
Video about Ceilings and Floors http://www.youtube.com/watch?v=XgBP
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