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Ch. 6 Price Controls

Ch. 6 Price Controls . P ceilings try to satisfy whom? Consumers P ceilings lead to ….. Shortages …. …..which lead to a question – how do we allocate resources? Rationing based on………… Lines, discrimination, bribery……. Efficiency? . The market is not cleared.

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Ch. 6 Price Controls

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  1. Ch. 6 Price Controls • P ceilings try to satisfy whom? • Consumers • P ceilings lead to ….. • Shortages …. • …..which lead to a question – how do we allocate resources? • Rationing based on………… • Lines, discrimination, bribery…….

  2. Efficiency? The market is not cleared There are consumers willing and able to pay P1 but they did not get a chance to buy the good. Pe is the “MARKET CLEARING PRICE”

  3. RENT CONTROL • Goal? • make housing affordable to poor • Elasticity of Supply in short run? • perfectly inelastic in short run- why? • Supply is not going to immediately change – will take time • How /why will supply become more elastic in long run? • …your ideas …. • How will supply be rationed? • …your ideas…

  4. Now Govt. faced with new problems…(four)… • Less housing supply • Less quality housing • Discrimination in housing market • Laws to prevent Discrimination / Hard to enforce • ……………Efficient allocation of resources???? • Free Markets Ration goods…..but rationing based on…. • Price …… = EFFICIENT ….and Unbiased • Allocate the goods to the buyers most willing to pay. • Allocate the buyers to the sellers with the lowest price

  5. Minimum Wage • Argument for Minimum Wage • Adverse effects are small • Increase standard of living for poor • Argument against Minimum Wage • Unemployment / lay offs • Mostly for teens – so not raising standard of living for heads of households • Encourages dropouts

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