welcome back to video number two um of our uh chapter three part two lecture notes and so we just talked about price ceilings so now we're gonna talk about price floors which is the mirror image of a price ceiling so let me share my screen get my notes back up so if a price ceiling is a government imposed maximum price that you can charge for a good or service a price floor is a government imposed minimum price that you can charge for a good or service it's called a four because like a floor is the lowest point in a room the price floor says this is the lowest you can charge for a good so there's two main examples that you see in textbooks about price floors the first one's what's called agricultural price support and that the story between the agricultural price support is that sometimes when you have shifts in supply of ships in demand the price for an agricultural good can get too low and the danger of an agricultural goods price getting too low is that if a farmer goes out of business and they can't cultivate their crop it's really hard to come back from that and so if for example the government thinks the price of corn is too low right now but it's going to come back demand will come back this is going to fix itself then the government might put controls to keep the corn farmers in business until the economy corrects itself so that's agricultural price support you're going to learn an example of this in your in your podcast this week if you've ever heard the term government cheese and you don't know where it came from where the government got so much cheese which is really what government is all about the government had too much cheese you're going to learn about it in this week's podcast and it's all to do with agriculture price support and trying to help dairy farmers okay and the other example is the minimum wage so you hear the term minimum in an economics class i think people's head goes to minimum wage and that is the example we're going to work on in the next few slides so the minimum wage of course is a government imposed minimum price not a minimum price of a good like milk or like corn but the minimum price of a service your labor your work okay so we're going to draw that supply and demand graph and by drawing i mean we're going to click over to a slide where you can see it and so this is going to be supply and demand for fast food workers in a small and medium-sized town and what you see here is it's drawn just like our normal supply and demand graph but when we think of the minimum wage we kind of have to think of it backwards if you remember the circular flow diagram backed in chapter one we had two markets goods and services and the labor market and in the labor market we reversed the order of who was the producers and who was the consumers so now the consumers the demanders the people who are buying labor those are the firms those are the fast food restaurants in this picture the suppliers the producers those ones who are providing labor those are the workers those the households those are us at least the ones those of us who work at fast food restaurants which i have in my in my lifetime um okay so here's our picture and the story here is that we're gonna have an eight dollar equilibrium wage okay so that's this point here lower the size of my picture so this is eight dollars our equilibrium price and we have an equilibrium number of workers hired at fifteen thousand okay and so let's say the government says eight dollars an hour is too low people can't have a living wage at that point and they put a minimum wage and i'm going to set it all the way up to 14 an hour because 14 an hour will be the minimum wage in california starting in january for at least for businesses of a certain size i can't remember what the limits are um but it's 20 it's and 20 21 15 and 2022 and smaller businesses get a year to catch up um so i am going to draw my minimum wage here at 14 an hour okay and we're gonna do that same analysis we did before okay and so that analysis is this is our new quantity demanded that is how many workers that fast food restaurants want to hire they want to purchase or hire 7 500 workers so this is 7.5 which is between 5 and 10. so fast food restaurants only want to hire 7 500 workers the supply tells us how many people want jobs at fast food restaurants and it's right here in between 20 and 25 so that's 22 500 or 22.5 and so you have a similar story but backwards now we have a surplus of fast food workers or more people looking for jobs than jobs that are available and this makes sense because of the two sided approach here one you have a decrease in the quantity demanded when you have to pay workers more firms faster restaurants are going to try to get by on less workers and so they're going to want to hire less people at the same time more people are enticed to getting jobs when you have a higher minimum wage so you have to imagine there's some people who are sometimes on the fence between whether they want to be in the workforce or not because they want their otherwise their you know maybe it's a teenager who just doesn't think it's worth their time or someone who's going to go to school instead of work or something who's going to stay at home with the family instead of work at low wages like eight dollars an hour it really isn't worth it for them to work but a high minimum wage is like 14 an hour they're like you know what that's worth it that's worth my time now to get a job so you have the supply increasing at the same time the demand is decreasing and you're left with the surplus now if you recall when you have surpluses this is what we saw in the last chapter the answer is really simple the invisible hand takes over and lowers prices right when there are things when there's bags of chips left on the shelves of the growth at the gas station ships go on sale so the answer to a surplus the labor market is for labor to go on sale to get cheaper but a minimum wage makes that illegal and so you do not get the cheaper minimum you cheaper wages okay and so i am going to clear off these drawings and click ahead and this is just the drawing um picture here digitally and so this predicts as you can see a huge change in the number of workers like half as many people have jobs and unemployment skyrockets okay so when you hear arguments about the minimum wage and this is a little bit of an aside but if we're going to have minimum wage example and i might i study the labor economics at school and so minimum wage is something i i thought about a lot and so i do want to i don't want to move on without talking without saying this um so that's the big argument against raising the minimum wage or against even having a minimum wage is that it causes unemployment and sort of there's no true consensus amongst economists famous economists argue about this a lot um but i would say the closest to a consensus is yet yes especially in the short term that raising the minimum wage can cause employment effects meaning you have less jobs available okay now the issue is one that can be a short-term effect and two look how big i drew this gap okay so i alluded in the last video that in chapter five we're going to learn something called elasticity and so i'm just going to do a quick little preview of that in this slide and this might help you a little bit for your next chapter but it's going to explain a little bit about the minimum wage so here i have the same slide i just erased the lines and so i want to show you something so let me go back here real quick i want to show you something to think about of this graph is the way this is drawn at a demand is again the amount of workers that fast food restaurants want to hire and it says that eight dollars an hour they want to hire 15 000 workers at 14 an hour they only want to hire 7 500 workers does that sound like a realistic assumption obviously these are all made up numbers but i like to give my example when i worked in fast food i worked at a smoothie restaurant okay so when i work at the smoothie restaurant and i'm trying i'm thinking about us during our busiest time of the day which is like lunch time that was our rush and so at this smoothie restaurant which is a local place it's good like a jamba juice but a santa barbara local one they would have four people working at a given time during the rush you have one person taking the orders the other person was called the juicer and so their job was to take the order take the blender fill it up with the juice pass the blender now with the juice knit to the dipper who's the person standing over the ice cream scoops uh scooping ice cream scooping the frozen fruit into the smoothie putting the ice in there and they hand it off to the blender and the blender's job is to blend the smoothies pour them in the cup call out the names for people so i think to myself what if they raised the minimum wage while i was working there it was 6.75 an hour while i worked there how many people would they have during rush hour i think four people i think you needed four people i think three people wouldn't have functioned and i think what if crazy they lowered minimum wage and it was five dollars an hour and they didn't have to pay a 675. i still think they'd have four people so what i'm trying to say by this anecdote is that i don't think and there's evidence obviously back stuff that there's this big change in the quantity demanded when wages go up meaning do i think that maybe my bosses at a smooth smoothie restaurant if they had to pay workers more maybe they would cut somebody earlier in their shifts or maybe have the opener by themselves a little bit longer before the first person came in yeah maybe but we would not see a change from 15 000 workers to 7 500 workers so i'm going to draw this a little bit different i'm gonna say that the difference is between let's say here at fifteen thousand i wanted this to be a straight line so i'm gonna draw it more like this so we still want fifteen thousand at eight so fifteen thousand at eight dollars an hour and fourteen dollars an hour maybe fourteen point eight thousand and you can kind of see where i'm going with and what about the quantity demanded when i drew that picture in this last one it had a ton more people 7 500 more people who want jobs 150 percent more people want jobs when the minimum wage went up i don't think that's true i think more people want work when the price goes up but i think most people kind of have their mind made up whether they want a job or not will a higher minimum wage induce more people to want to work yes a ton more people probably not some draw it more like this again this was supposed to be a straight line oops so maybe we go from fifteen thousand and eighty five hundred to fourteen dollars an hour maybe seventeen thousand five hundred so maybe twenty five hundred more people and so you get the same results that you create a price a surplus when the minimum wage goes up but it's a lot smaller and so that's the takeaway i want is that yes i do think there are unemployment effects when you raise minimum wages they tend to be pretty small and then all it takes is a bump in demand for fast food because more people have money in their pockets and that minimum wage effect can disappear altogether okay so that's it for this video uh in the next video we're going to learn about how we can look at efficiency in the demand supply model and how we can use that to sort of uh give a more a bigger a better story about the problems with price controls