ECON 103 Lecture Notes - Lecture 8: Price Ceiling, Price Floor, Panera Bread

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skycod857

28 Jul 2016

School

George Mason University

Department

Economics

Course

ECON 103

Professor

Donald Boudreaux

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Document Summary

Means that market value is higher than equilibrium. Ex: you are selling a bill for a maximum of . So people will compete to increase their chances of getting the bill. Price ceiling makes a good more expensive to get by reducing the quantity supplied. Ex: it costs money to keep gas pumps clean. So if you aren"t cleaning the nozzles and grounds, then less people are going to come to your gas station. Rent control: price ceiling put on the monthly rental rates of apartments: purpose is to help middle-class people afford housing, quantity supplied of units being rented falls. Ex 1: some people would share their homes with strangers to have more income: causes sellers to want to sell housing rather than rent because when they are selling there is no maximum price. Price floor: price can"t fall below a minimum set price. Favored by 70% of public. (price is above equilibrium and can"t move down)

Related Questions

Question 1

During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

		$30
		$35
		$40
		Indeterminant with the given information.

2 points

Question 2

Which of the following is an example of a price floor?

		A sale price with a limit on the quantity you can purchase.
		Rent-controlled apartments
		Predatory pricing designed to put a competitor out of business.
		The minimum wage

2 points

Question 3

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		The Affordable Care Act
		Minimum wage laws
		Rent control laws
		Communism

2 points

Question 4

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 5

What is a price ceiling?

		A minimum price consumers are willing to pay.
		A minimum price allowed by law.
		A maximum price allowed by law.
		A maximum price consumers are willing to pay.

2 points

Question 6

Why are the long lines generated by a shortage worse than paying a higher price in money?

		It is not better or worse. Paying in time and paying in money are essentially the same in a market economy.
		Paying with time reduces the value of money, and prevents valuable trades from occurring.
		Waiting in line is a waste of a valuable resource: time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources.
		Paying with time gives those who do not work an advantage over those who do.

2 points

Question 7

Which of the following is a possible effect of a price floor?

		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		Decreases in product quality.
		A shortage of the good.

ECON 103 Lecture Notes - Lecture 8: Price Ceiling, Price Floor, Panera Bread

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