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Chapter 6, section 3

Chapter 6, section 3. The 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.

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Chapter 6, section 3

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  1. Chapter 6, section 3 The Price System at Work

  2. 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

  3. 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

  4. 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

  5. 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

  6. Seinfeld Video – Rent Control • http://criticalcommons.org/Members/Ghent/clips/the%20apartment_rent%20control.mp4/view • Begin video at 1:24

  7. 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

  8. 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

  9. 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

  10. Quick Write • SHOULD THE U.S. GOVERNMENT IMPOSE A PRICE CEILING ON THE SALE OF GASOLINE IN THE UNITED STATES? • Why or why not?

  11. Gas Prices: What might happen if the US government set a Price Ceiling on Gasoline below its actual value?

  12. Video about Ceilings and Floors • http://www.youtube.com/watch?v=XgBPAucs-W4

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