Transcript Floors and Ceilings

Floors and Ceilings
 After
World War II, many
veterans came home and
immediately decided to
start families
 There was a great
demand for housing in
American cities
 Some
local governments
decided to impose rent
control on apartments
 They believed that prices
were too high and
decided to set a
maximum price that
landlords could charge
 We
call that a price
ceiling
 The supply of apartments
will be very low as
landlords rebel against
the law and realize they
can’t afford to rent at that
low price
 Because
of the low price,
everyone wants to rent
 Shortage will leave many
people without a place to
live
 Some
American prices
are set by government
price controls
 Imagine that unions
appeal to the government
for higher wages to keep
up with cost of living
increases
 Because
it believes that
the minimum wage is too
low, the government will
set a higher one.
 The equilibrium price is
too low according to the
unions, workers, and govt
 What
is the minimum
wage right now?
 They
set a new price that
is higher than the market
wants
 It will result in a surplus of
workers for the available
jobs
 Whenever
they are
effective, price floors will
usually result in shortages
 They can be ineffective if
the ceiling price is set
above the equilibrium
price or if the floor price is
set below the equilibrium
price
 If
the government wants
to use a price ceiling on a
product, what advice
would you give?