Hey, how you doing Econ students? This is Mr. Clifford. Welcome to ACDC Econ.
Right now I'm going to talk about price controls. Right now at the end of 2014, gas prices in California are around $4 a gallon. It's actually a little less, but let's just keep it simple and say that equilibrium price per gallon is $4 and the quantity is $100. So I'm tired of paying high gas prices.
I think we should go to the government and can them to get the prices lower. So the government should make a law and say that we should lower the price below equilibrium to let's say $1. This is the idea of something called a price ceiling.
A price ceiling is the cap on a price the government sets so the price cannot go up to equilibrium. Again, a ceiling is the maximum price a seller is allowed to charge. So do you support this idea of having the price down here at $1 and we all get cheaper gasoline? It turns out that's why you're in this class. If you didn't take econ, you would think that lowering the price would mean we could have more gasoline.
You actually vote for this and say, hey, this is a great idea. But taking this class helps you realize that this is a horrible idea. If we lower the price for gasoline, that means the quiet demand is going to increase right here to $200. So at a lower price, consumers will want to buy more gallons of gasoline. But when the price falls, the quantity of supply is going to fall.
In this case, it's going to fall to 50. Remember, at a low price, producers don't want to produce very much. If they only produce 50, that means we're going to have a shortage of 150 gallons of gas. So it turns out that this law designed to help consumers by lowering the price actually hurts consumers because now we get less quantity.
Instead of 100 gallons of gasoline produced, now we only have 50 gallons produced. This is the idea of price controls, when the government comes in to control and manipulate prices. Now, there are some exceptions, but for the most part, competitive markets should be left. the loan because the government if they come in it's going to mess it up cause a shortage or a surplus or some misallocation of resources another example of price controls is something called a price floor a price floor is a minimum price that buyers are expected to pay for a product so let's assume that the government really wanted to help corn producers by keeping prices artificially hot so let's assume that the current equilibrium price for corn is ten dollars for let's say 50 units what's a unit of corn is that like a gaggle of corn is it like a box of corn Again, let's say the government comes and says, listen, that price is too low. $10 is not enough for our farmers.
We have to increase that price. So they set a price floor up here at 30. Now, when the price goes up, the quantity supply goes up, right? Producers wanna produce more.
And in this case, they wanna produce 100. And at that new price of $30, consumers only wanna buy 30 units. So it turns out this policy actually doesn't even help those producers because no one's actually buying the corn. And of course, there are exceptions to this, but in general, competitive markets should be left alone. A floor is gonna lead to a surplus and- and a ceiling's gonna lead to a shortage. Now it's really easy for students to get confused about this.
They usually think a ceiling should go above equilibrium because a ceiling is high, right? It's a ceiling. But that's not true.
A ceiling has to go below equilibrium if it's gonna have an effect on the market. I mean, think about it. If a ceiling is above equilibrium, it's not gonna have any effect, right? If the government says you can't sell gasoline for more than $30,000, businesses won't and aren't even trying to sell it above $30,000.
So to have an effect, a price ceiling, a maximum, has to be below equilibrium. Now this confusion all. Also applies to a floor.
A floor has to be above equilibrium. For example, for corn, if they said you can't sell corn for less than 10 cents, the producers would be like, well, we're not trying to sell it for less than 10 cents. And so it's going to have no effect.
So all that being said, a ceiling goes below equilibrium, a floor goes above. Now, it doesn't matter if you're enrolled in microeconomics or macroeconomics because you're learning exactly the same concepts up to this point. In unit one, you talked about production possibly is curve and scarcity and absolute and comparative advantage. And right now you've learned about supply and demand.
shifts in the curve and ceilings and floors. But if you're taking macroeconomics, now you're gonna talk about the overall economy. You'll be analyzing GDP, unemployment, inflation, and eventually something called aggregate demand and aggregate supply, which by the way, is why you should really understand supply and demand in markets like we've been covering.
If you're learning microeconomics, you're gonna stick with markets, but you're gonna go in a lot more detail. For example, you're gonna talk about taxes and quotas and elasticity and a lot more concepts that have to do with this supply and demand curve. Now, if you haven't already been there, make sure to go to my channel menu.
This is my channel. This has all the links you need for micro and macroeconomics. Another couple of videos that you might keep in mind are these two videos. These are the micro and macroeconomics summaries. In these videos, I do a really quick explanation of all these key concepts.
And again, I give you links to different videos on my YouTube channel. All right, don't forget to subscribe and come back often because I'm making a bunch of new videos, all right? Till next time.