Notebook # 16 - Economics 6-3

1. Notebook # 16 -Economics 6-3 Social goals vs. market efficiency

2. Economics 6-3 Social Goals vs. market efficiency ESSENTIAL QUESTION: How does having a fixed price rather than the equilibrium price affect the market?

3. Economics 6-3 Social goals vs. market efficiency GPS STANDARD: SSEMI3 b.)- explain and illustrate…how price floors create surpluses and price ceilings create shortages

4. Economics 6-3 Social goals vs. market efficiency • To achieve one or more of its social goals, government sometimes sets prices. • Chances are that you have worked for the minimum wage at some time in your life. Why is this an example of a price floor? • Because the government is setting the lowest price that a person can be paid for their labor (work)

5. Economics 6-3 Social goals vs. market efficiency • In Chapter 2, we examined seven broad economic and social goals that most people seem to share. • We also observed that these goals, while commendable, were sometimes in conflict with one another.

6. Economics 6-3 Social goals vs. market efficiency • These goals were also partially responsible for the increased role that government plays in our economy. • The goals most compatible with a market economy are freedom, efficiency, full employment, price stability, and economic growth.

7. Economics 6-3 Social goals vs. market efficiency • Attempts to achieve the other two goals—equity and security—usually require policies that distort market outcomes. • In other words, we may have to give up a little efficiency and freedom in order to achieve equity and security. • Whether this is good or bad often depends on a person’s perspective.

8. Economics 6-3 Social goals vs. market efficiency • After all, the person who receives a subsidy (Medicare, social security, healthcare, welfare, etc.)- • …..Is more likely to support it than is the taxpayer who pays for it. • What is common to all of these situations, however, is that the outcomes can be achieved only at the cost of interfering with the market.

9. Did You Know? • During the nation’s Great Depression, prices for farm products tumbled. • Farmers lost much money, and many even lost their farms. • At the same time, the farms produced surplus crops. • To combat this, in 1933, the government passed the Agricultural Adjustment Act. • In part, this act authorized payments to farmers who agreed to reduce the acreage they farmed. • This effectively reduced the crop surplus and boosted farmer income.

10. Social goals vs. market efficiency • In housing markets, a rent control is a price ceiling (the highest rent that the government will allow for that house or apartment.)

11. Social goals vs. market efficiency • The minimum wage is an example of a price floor (because the government is setting the lowest price that a person can be paid for their labor).