Example: Assumed Price Controls in the pizza market Figure 3. 9 upply Excess demand=8000 slices/day o Price ceiling=2 Demand 81216 uantity(,000s of slices/day
Figure 3.9 Example: Assumed Price Controls in the Pizza Market
Problems with Price ceilings Shortages Inefficiencies misallocation to consumers wasted resources low quality black markets
Problems with Price Ceilings ◼ Shortages ◼ Inefficiencies – misallocation to consumers – wasted resources – low quality ◼ black markets
Example: Price Floor of butter (per pound Quantity of butte (millions of pounds) $1.40 Price of butter Quantity Quantity 1.30 (per pound) demanded supplied 1.20 1.40 8.0 14.0 1.30 85 13.0 1.10 1.20 9.0 12.0 1.10 95 11 1.00 1.00 10.0 10.0 0.90 10.5 9.0 0.90 0.80 11.0 8.0 0.80 0.70 7.0 0.60 12.0 60 0.70 0.60 607.08090100110120130140 Quantity of butter(millions of pounds)
Example: Price Floor
The effects of a price floor Price of butter (per pound) Butter surp/us of $1.40 3 million p caused by price floor 1.20 A: Price floor 1.00 0.80 0.60 D 6.0 8.09.010.0 12.0 14.0 Quantity of butter(millions of pounds)
The Effects of a Price Floor
Problems with price floors ■Surp|us Inefficiencies misallocation of sales among sellers Wasted resources Inefficiently high quality a llegal activity
Problems with Price Floors ◼ Surplus ◼ Inefficiencies – misallocation of sales among sellers – Wasted resources – Inefficiently high quality ◼ Illegal activity