Bellringer

1. Is equilibrium price always fair?

2. Think of an example when it might not be.

Chapter 6

An offer• Test corrections• Up to ½ of what you missed• Due Monday 9/17 start of class or earlier

• Must turn in original answer sheet along with: • A. why correct answer is right• B. Why the answer you picked is wrong

Dead weight loss

• Misallocation of market resources• In other words: inefficiency• Causes:

1. market interferences (taxes, regulation)

2. Incomplete information

3. Monopolies

4. External supply issues (IE: pollution)

Functioning market at Equilibrium

Problem with Market, price now at higher place B & C “DWL”

• QS!• Q1 to Q2

Price floors – low limit on how low a price can go

Price Ceiling – limit on how high a price can go

Government Solutions!

Price CeilingDesigned to help

consumers

Illegal to charge higher than the price

Example: Rent Controls

Problems?

Quality

Shortages

Price CeilingDesigned to help

consumers

Illegal to charge higher than the price

Example: Rent Controls

Problems?

Quality

Shortages

Stossel Clip

Price Floors

Designed to help firms

Illegal to charge lower than the price

Example: Farmers during New Deal

Problems?

Efficiency

Surpluses

“subsidies” – payments from government to business

Price Floors

Designed to help firms

Illegal to charge lower than the price

Example: Farmers during New Deal

Problems?

Efficiency

Surpluses

Stossel Clip

Homework• Complete my Price Floor/Ceiling worksheet

• Write me a new one for the regular students