ACDC Econ Lecture Notes: Price Controls

Introduction

• Speaker: Mr. Clifford
• Topic: Price Controls
• Context: Discussing gas prices in California at the end of 2014 (approximately $4 a gallon).

Price Ceiling

• Definition: A Price Ceiling is a maximum price that the government allows sellers to charge.
• Example: Proposal to lower gas prices to $1 per gallon.
• Implications:
  • Quantity Demanded would increase to 200 gallons.
  • Quantity Supplied would decrease to 50 gallons.
  • Resulting Shortage: 150 gallons of gasoline.
  • Important Note: Price controls can hurt consumers in the long run by reducing the quantity available.

Price Controls Overview

• Price controls involve government intervention to manipulate prices.
• Competitive markets should generally be left alone to prevent shortages or surpluses.

Price Floor

• Definition: A Price Floor is a minimum price set by the government that buyers must pay.
• Example: Government sets a Price Floor for corn at $30, while equilibrium price is $10.
• Implications:
  • Quantity Supplied at $30 would increase to 100 units.
  • Quantity Demanded would decrease to 30 units.
  • Resulting Surplus: Excess supply that doesn't sell.

Key Points on Price Controls

• Confusion between ceilings and floors:
  • A Price Ceiling must be set below equilibrium to have an effect.
  • A Price Floor must be set above equilibrium to have an effect.
• Example clarifications:
  • A ceiling above equilibrium (e.g., $30,000 for gas) has no impact.
  • A floor below equilibrium (e.g., 10 cents for corn) has no impact.

Economics Course Structure

• Regardless of whether in Microeconomics or Macroeconomics, fundamental concepts are the same.
• Microeconomics: Focuses on markets, taxes, quotas, and elasticity.
• Macroeconomics: Discusses overall economy metrics such as GDP, unemployment, inflation, and Aggregate Demand/Supply.
• Importance of understanding supply and demand as a foundational concept in both disciplines.

Additional Resources

• Links to Micro- and Macroeconomics videos on Mr. Clifford's YouTube channel for further learning.
• Encouragement to subscribe for more content.

Conclusion

• Price controls can lead to unintended consequences such as shortages and surpluses.
• Importance of understanding economic principles for better decision-making.