foreign hello all right so today we're going to talk about chapter five which is when the government interferes with supply and demand curves it can't end well can it but it kind of does so there is a time and a place for this so okay the first part we're going to talk about now that we've learned about supply and demand curves you guys all know when they come together why there's a market price hell if you set the price above the market price then you have a surplus of goods you won't be able to sell enough of them until you lower the price so they all sell at the market price you know that if you said the price below market price you end up with a shortage of goods right you sell out too quickly and so people raise their prices to get to the market price which again is why it's so important for you to always know what your market price is for your company or if you start your own business or wherever you work and what's the best way to do that if you're trying to do that on the cheap look at your successful competitors see what they can choose with similar products that'll at least give you a starting point so that you can tell if you can make enough money by looking at how much things cost to to make profits all right so the first thing we're going to talk about today is when the government room it's usually the government would set a price below equilibrium price why would this happen well this is what when people ask me why can't the government make gas one dollar a gallon well can the government make gas one dollar a gallon yeah the government can do whatever it wants and actually this kind of setting prices um actually happened in the 70s and if you remember from your history books if you got to the 1970s in it if you made it that far you'd see those lines of people lined up for gas because there was a gas shortage why was there a shortage because the government set the price below equilibrium price and you guys know since you're Economist that leads to a shortage so that's why so when people and what ends up happening is even though everyone who's taken economics which should be everyone in the world but now that you guys are economists you can inform people know that if you set the price below equilibrium price you lead your shortages it's very tempting it's tempting to get votes to get support to say hey I'm helping people right we're going to help them have cheap gas um a couple years ago Mexico did this with tortillas tortillas are a stable product so they set the price they said hey no one can charge more than let's say 10 cents for a pack of tortillas and let's say the market price was 50 cents so what ended up happening did it help people well it helps the people who get the tortillas but it ended up with a huge shortage and even though this happens every time it's still so easy for people around the world in every country every area it's a promise like I'm gonna Help the People by setting prices low so this comes up a lot and this comes up with my friends they're like why can't we just set it low and stuff well then you'll be able to like me explain why and we're going to show it in a graph all right so let me go over to my whiteboard all right so okay so now I'm sharing so let me go to whiteboard and let me make sure it is large so you guys don't have to look in the there okay so the first thing we're going to talk about which I just started talking about is called a price ceiling all right and this is when the price is set below equilibrium price or the market price all right so how do we draw this all right so let's do this also happened in Venezuela um Venezuela's economy it really was destroyed in part because of this um at the time the president of the time the president dictator at the time Nicholas Maduro um set to help people set almost all consumer goods prices below way below equilibrium price to help people but it ended up causing huge shortages because really you know let's say you can sell rice and actually let's do Rice okay so let's do rice and let's say Let's see we have price we have quantity we have our supply of rice and we have our demand for rice and let's say the equilibrium price for a bag of rice is twenty dollars and at twenty dollars we're gonna sell well it's a country so let's say we're gonna sell 10 000 bags of rice so Nicholas Maduro said hey I'm gonna help people because I'm going to make sure that people can afford their food so we're going to set the price at one dollar and this is really pretty much what happened because one dollar is so much more affordable and people were like so we we can get rice for a dollar a bag but what actually happened well let's dot across you know we're so good at our dots so what is the supply of Rights well people are willing to surprise what would you say like 2 000 bags of rice there and then if we keep dotting where's the demand for rice to get a dollar I know my dots are a little it's white boards a little hard to use but it works pretty well all right I would say that's twenty thousand so the demand for rice at a dollar is twenty thousand bags but the supply over here is only 2 000 bags that leads to a shortage of what eighteen thousand bags of rice okay so this is your shortage it's eighteen thousand because twenty thousand minus two there's only two thousand available and people want 20. and so you have huge shortages and the thing that actually made this worse is that so he did this and there were there were huge shortages of of almost every consumer good people starving for years people fleeing Venezuela this is part of that migrant crisis that happened has had been happening during that time during those years um you know 2000 you know probably starting in 2015 2016 17 18 19. are people that are fleeing starvation because in part that with these price ceilings no one wants to sell things there and so there's huge shortages of goods it got to the point where the government had to bring in trucks of food because the only way they could get food and the trucks are guarded by the generals the Army because people would kill to get these trucks because they're literally starving um I don't I think it's very difficult for us to understand what it's like to be in a country where there's literally no food and you will you and your family and watching your family members die of starvation um that is why people will walk a thousand miles to try to save their family and you know save themselves um it ended up you know women men crossing the border because it is an open border into other countries in Central America becoming prostitutes um selling everything they had to try to bring food back for their families um or just trying to flee for a better life so um this became very extreme um in in Venezuela and the other part that made it worse if you think about it is the world's a global economy today so you know companies don't have to sell a race for a dollar right they can go to another country another country to sell it so it even sort of compounded making it worse and worse and worse um and so that's why price ceiling so price ceilings mean that the price is set at once so it can't go above a dollar you could sell it for below a dollar the government says but you can't sell anything above a dollar so the thing to keep in mind for Price ceilings because this will come up in your life one of your friends at some point our family member is going to say why can't the government just make a price limit on some good something that's being you know on um you know like like for me it's been my friends have always say on gasoline you know when gas went to four dollars a gallon they're like why can't the government say it's only a dollar well they could and this is what I tell them and hopefully you will tell them and your friends when this comes up with other consumer goods in your lifetime you can say well they quit do that but it'll just create shortages and as free market economists and a lot of economists say that you know shortages aren't good because the other thing about shortages imagine so what people in Venezuela did and in other countries too when there's huge shortages of these Goods is they wait in line all day for the truck to show up any truck with any good because you've just got bare shelves and whatever comes what would you do what would you do I would buy all I can and it's ration they'll say you can buy three bags of rice I would buy three bags of rice right after standing in line 12 hours oh my gosh rice came in and then what do you do with the rice you sell it on the black market so one of the other downsides is these leads to these tend to lead to a black market because people will buy it cheap and then they'll sell it on the open market which is going to be a much higher price than 20 when people are starving and so that leads to a black market black markets tend to lead to a lot of violence people and this is true people I mean if you're starving people are killing for food it also tends to be that the strong people get the food so women children older people like physically can't protect the food so they don't get it it it it's just how it is when people are desperate for these kind of items so it leads to what can lead to a black market it can lead to violence it can lead to corruption um you know it can lead to you know a lot of things so price ceiling sound really good like we're gonna help you but anytime they're gonna help like but then you have to think oh no if we do this price ceiling and whatever this good is it can lead to a lot you know shortages best case scenario worst case scenario violence you know the black market people fighting over the limited Goods that are available one of my friends grew up in Chile and um a long time ago he's older than I am and um they had a similar situation with a very violent uh dictator at the time and he said he remembered like his earliest memories as a toddler because they had ration books with his family would get up every night about 11 o'clock at night and then they would go with the whole family because you'd have everyone for their ration book which shows how much food you could get per person and he said his whole childhood was spent or for years standing in lines all night long because when the store opened up they wanted to be there to try to get whatever food was available with their card that said each person would get this much and they would sell it um so that was the only way they could survive so price ceilings Court of sound like helping people and boy we'll bring them up but they do lead to huge shortages another example of a price ceiling that you might have heard of is rent control and this is come up this comes up all the time uh if you've ever watched Friends the TV show why did Rachel and what's her name Rachel and not Ross but anyway Rachel and Courtney Cox's character which I can't remember right now usually I'm in class so you guys can tell me um this is gonna bug me anyway why can they afford that apartment in New York City that's like super expensive there it's because they say in the first episode someone's aunt died and they and it's a rent control department so rent control is when the government sets the rent below equilibrium price and so it's supposed to help people New York City has rent control a few other cities around the world have rent control and this comes up as an election issue more than you would think because when you said it let's just so in let's pick New York City or let's talk about Paris Paris after World War II after World War II most of France was destroyed by bombing so the countryside and by fighting I mean that's literally where tanks were you know unless if you've been to Europe you know what I'm talking about remember the first time I went to France and I was like wait a minute people like were fighting in this Village yeah War happens where people live and so um due to very interesting circumstances if you want to look into it Paris was not destroyed by the Nazis um apparently due to a general disobeying orders at the end but they also used it as their headquarters during a lot of times during the war so most of France was literally destroyed so after the war people came back to Paris one because maybe they were from Paris but also because it was the only place to I mean City to go to for food and I mean things are pretty desperate after the destruction of the war and so they came back so what happened well if we have our supply and demand curves I'm going to draw it down here all right we have price quantity Supply demand okay so this is for housing so people came back for um and so this is the rent right the price for housing is rent especially in Paris where it's rented so people all these soldiers came home families came back to Paris so does that change the supply or demand for housing it changes the Demand right and is it an increase or decrease it's an increase when we use our three-step plan it's an increase more people want to rent houses they're not building more houses that people are coming back so they're increasing demand so what should happen in price more people want it it should go up so what ended up happening was the demand curve started shifting up so then if rent was let's say a hundred dollars suddenly rent is now 300 and then more people I'm not 3 300 and then more people came and more people came so like you could see the rent was just skyrocketing because the demand was going up and in housing especially you could only build so quickly it takes honestly a while to build housing and then if you've been to Paris it's already built up so people said help us help us the rent's going up too high it's hurting us so Paris is a governor mayor at the time um instituted as a system of rent control which said that you couldn't raise the rents at all over a very low level a couple hundred dollars really in today's dollars this system of rent control went on until the 1990s so that's almost what is that it's from the 40s 40 a good 40 45 years of rent control where the you couldn't raise the rent so imagine for 45 years what's this thing practically what happens if you're a landlord and you can't raise your rent and your rent is like like 100 a month right that's all you can charge so first of all we know what happens is there's a huge shortage of Apartments because they've said it so low it brings us like to this world where it's so low there's a and they're what there's a huge shortage of apartments and also no one wanted to move out if you move out you lost your rent control so no one moved out so over 45 years the people that those families that had the apartments in the 1940s never moved out so their their kids would live there imagine so most people since there was no other I mean they're not building housing in Paris for many reasons so people like that like as you grew up maybe you know the daughter lives in the living room with her whole family and the son would live in the living in the dining room with his family because there's no other housing so if you wanted to stay in Paris those families held on to those houses because they wanted to keep their rent really low it also led to a black market in apartments where people would pay bribes to get into Apartments because there is no Apartments there's stories of people going to funerals and other people moving into the apartment while they were at the funeral to try to steal the apartment and then they would bar them and then they would use violence to keep the apartment really and then the other part is besides the shortages besides the fact that also only like older people could have the apartments if you were a new young person all the older people had the apartments and they're not going to move out so there was you know no place for you to go in Paris the few apartments that were not rent controlled the rent skyrocketed because there's almost none of them so that decreased the supply and we know if we decrease Supply um well if we decrease it it goes in and so if we decrease the supply it goes this way I'll just draw this a little bit so you can see the price would go up because I decreased the supply of market rate Apartments so we're hardly any available just for people to move into so prices were going up and imagine you're the landlord you own an apartment in Paris for over 40 years maybe your whole entire life you can never raise the rent what are you going to do with that apartment well I can tell you what they didn't do they didn't spend lots of money upgrading them because why would you you cannot charge more rent and the people that lived in them they're not going to pay rent invest in new kitchens and stuff because they don't own it so the housing stock in Paris was extremely poor by the 1990s where some people still had to go to the bathroom in the backyard or down the hall most people didn't have their own bathroom um you can imagine the fixtures had not been changed since the 40s things were crumbling um it was a very it was like appalling and then in the 19 early 1990s they actually they phased out rent control now it's very expensive to live in Paris but it's actually less expensive than it was before where there was hardly any apartment so the ones you got were super expensive it's still super expensive but the other thing is the housing stock has been invested in so if you've ever watched like House Hunters International or any of these like shows you could see if you're a landlord now you might want to put that new kitchen in and actually put a bathroom into your place because now you can sell it for more money and so it helped increase the housing stock if you go to New York their stories of landlords I don't know what percentage is rent control let's just guess it's 50 so there's still a lot of apartments that are not rent controlled but there's some that are in order to unrent control them you have to get everyone to agree and there are stories of landlords you know offering to pay their tenants hundreds of thousands of dollars to move out because they want to convert it into market rate apartments and even if they pay millions of dollars it's still worth it because you know how high rents can be in New York City and they want to be able to do that but also um to other sort of rent in general in New York is very high in part because the rent controlled ones are almost like off the market because those people aren't going to move I have a good I have a friend that went to high school with it happened to move to Brookline right after we went to college that was the 1990s Berkeley the 1990s was not fancy and he got a rent controlled apartment and as he said he's dying in that apartment because now Brooklyn's really fancy and there's no way he's still paying the same rent you pay like 600 a month and that apartment now probably would go you said for you know four or five thousand dollars a month on the open market he's like I'm not moving at the same time his landlord's not investing in it and he's like I don't care I got a great place so rain control has a lot of issues um it makes housing expensive for other people um also in New York City there's been stories of people um ripping off I remember reading about one building where the landlord tried so hard to get rid of his tenants that they he ripped off all the stairs and got rid of the elevator so imagine it like a 20-story apartment building where there's no stairs or apartments he ripped them out so with the late I read the story was about how the people who live there put ladders up and they would climb the ladder to each thing because they as they said where else could they live in New York for this little money and so they didn't want to move so um there's also a lot of bribes paid apparently in New York to get you know anyway so here's that's the thing about rent control is that it helps tenants and it helps the people who can get affordable housing and affordable housing is really important people should have be able to afford on whatever they get paid minimum wage if you work if you work you should be able to afford a housing is it good for the economy too people not be able to afford to live somewhere it's not good for the economy because UK is hard to work and be a productive member of society when you don't have a place to live so having affordable housing is really important so rent control can help the the tenants find a place to live and that is important but it does lead to shortage of Apartments it leads to higher rents for other people it leads to a d like landlord's disincentive to fix up things it leads to poor housing stock it can lead to a black market it can lead to violence a lot of economists think instead of rent control we could do a system where we gave people vouchers if you've heard of vouchers and vouchers is when people um are given like an extra 500 a month and then they pay the difference and so that way the landlord would get the market rate but um the lieutenant could have affordable housing and then you would still be at market rate and you wouldn't end up with these negative things so that's price ceiling now the thing about price link to number is you can't go above the price ceiling okay so this acts like a ceiling it's solid right you could be a price down here but you can't go up here okay that's important to know so make sure you've got this written down I'm sure you do the next one is a price floor appraised floors when the government sets the price above equilibrium price all right so the price is set above equilibrium price all right so let's draw this the example of this the plastic example is minimum wage [Music] so let's say that if you looked at the supply and demand for workers it was five dollars an hour for minimum wage workers and you would hire let's say 50 000 workers and then the government says the price people I cannot let's let's just go with a higher okay let's well all right let's say you set the price in Illinois right now I'm gonna wage is ten dollars an hour and I just hate to even think about minimum wage being lower than ten dollars an hour even though it is but in some places I'm just gonna go with 10. so at ten dollars an hour what happens if you dot across this is the demands the demand for workers what do you think maybe 30 000 workers and then as we dot across to supply of workers is eighty thousand so what do we end up with a surplus of workers which equals unemployment now this is the graph that shows so a lot of um if you read if you read in the paper online or in journals this is the graph that some people use to say we shouldn't raise the minimum wage because raising the minimum wage increases unemployment and you know what according to this graph it does but it's not that simple um but a price floor does mean so you notice just real fast that see this floor this price acts like a floor acts like solid so you can't go below the floor so you have to walk on the floor and the ceilings and the bottom you bump your head on the ceiling because it's kind of weird that the floor is above the ceiling but it's because that's where the price can't get through so on the top you can't get down lower so it says floor and at the bottom it can't get up higher so the bottom one is the price ceiling okay because it seems kind of counter counter-intuitive but that's what it is so but why so this theoretically this is the graph okay minimum wage causes unemployment to go so not that simple if people make ten dollars an hour what do they do so let's do the pros and cons of minimum wage all right if people have ten dollars an hour instead of five dollars an hour they have more money to spend and you know what that does to the economy it helps the economy grow and that creates jobs so if you have more money to spend and I'll tell you you can look at survey after survey if you're a minimum wage worker and there are this isn't we're not talking about just teenagers making extra money there's a large percentage of our Workforce Force our minimum wage workers that's their full-time job that they support themselves and their families on and so if minimum wage workers tend to spend every penny they get every week because they don't have that many pennies and so if we're trying to stimulate the economy we need people to spend money and these people will spend money so every time you increase the minimum wage it helps grow our economy because they'll spend the money if you give tax breaks or extra money let's say I'm a millionaire and I get an extra hundred dollars a week at my take-home pay honestly even if I'm a 100 000 error I'm probably not going to notice the extra hundred thousand I mean I'm sorry the extra hundred dollars a week and take-home pay because what I mean I'm making whatever a couple thousand a week right I'm not going to change my spending habits because of an extra 100 a week but if I'm a minimum wage worker and depending on your minimum wage it could be between 14 to 18 000 a year you're making if I get another hundred dollars a week I'm spending that hundred dollars a week and that is going to help stimulate the economy so one of the fastest ways we can actually grow the economy is to increase the minimum wage because people will spend the money um increasing like decreasing taxes or giving checks that's one of the reasons many stimulus packages they do not give checks to people that make over a certain amount of money because they're not going to spend it and it's not going to stimulate or grow the economy so having more money is really good the other thing about having more money is you need less government assistance I can tell you I have volunteered at food pantries here in where I live in Lake County Illinois it's a very expensive County to live in less government sorry assistance and what is government assistance paid for by our tax money so that's less tax money which is what I like spending less tax money so I can tell you what the food pantry is here the I would say the number well there's two main groups of food pantries and I've been at many one is working families where both parents work minimum wage jobs and by the time and they might work two minimum wage jobs I mean or more um but by the time you pay your rent in Lake County no matter where you live um in your bills you might need extra food assistance the other group is seniors living on a fixed income if you're living in Social Security and maybe a pension a small pension and you live in Lake County it's a big County but in many parts of the country you can't afford to also buy food or you're very limited on your food choices and those are the big groups of people at food pantries in the country and it's a lot of children a lot of families with children so if you have more money to spend then you can buy your food you don't have to go to food pantries which is um like there's charity food pantries there's government food pantries um it actually would be it used to be when food stamps were invented or the the um uh the program I can't think of the name of it now um what they call it now but the food stamp program where they give you food assistance they used to cover all the food needs for people and so but now they've every president I think every single president since Reagan has cut food assistance so now it's so little it might be 11 a month or something so now but it's it's led to a boom in food pantries so in the 1970s when food assistance was created there weren't food pantries but after cutting so much food uh there's there's now actually a huge industry in food pantries there's a lot of jobs now in food pantries it's not a very efficient system because you're paying salaries you're actually like thinking of all the gas to like drive into food pantries the rent food pantries pay it's a lot of like kind of wasted money it would be actually a lot more efficient and cheaper if we just gave people food stamps so they could just go buy the food they wanted instead of creating this Giant Food Pantry thing and it's kind of interesting to look into because now it's just hard because it's like if you get rid of food pantries then people lose jobs and so maybe we should keep food pantries and also maybe we should punish people for having to use because they have sit there and then they end up getting food they don't want and it's unhealthy so there's like a whole lot around food pantries we can unpack but we won't we could do a whole day on food pantries but if you have more money you don't have to spend all day waiting in a food pantry for food which lets you work more and it's better and you need less government assistance so that is also good good too con is well if you pay people more it could lead to higher prices in Illinois the minimum wage has been higher than Wisconsin for many years and people at first said oh and many states are higher uh well Washington state New York actually a number there's a big list of states that are there don't use the federal minimum wage or higher and at first people are like oh everyone's going to move out of those dates and go to the other there's going to be no jobs left well that's really not true it actually is not true factually it did not happen and um in fact um it actually since it's creating jobs and creating more um the spending some states have done better after increasing minimum wage because it doesn't always lead to higher prices because if you're getting more sales um it depends on where we put the minimum wage which we're going to talk about but that also leads me to a pro is that it increases Workforce participation so what does that mean it means that more people get jobs is it better for the economy yes um it's much better for the economy to have more people working so I have had many students at Carthage like so many over the years that have said oh you know in the summer I work in Illinois they might actually live in Wisconsin but they're like oh I work at a restaurant in Illinois because I make much more money or you know the Starbucks at Carthage they'll say well I work at Starbucks in the summer in Illinois because I get 15 an hour plus tips so like here I just make minimum wage they're like so I don't work here it's not worth my time well it's better for our economy to have people working and being productive so actually by increasing the minimum wage you really do get more people to work because it's worth their time you might have thought that that oh that job's not worth my time but if it was paying you 15 an hour you might have been like hey that job might be worth my time and that's better for our economy to have more people working so more people working more money to spend you know it could lead to higher prices for businesses because they have to pay higher wages um and so that is a con right because higher prices are higher wages um and I think the thing to keep in mind too is that let's look here so you know I drew this like five dollars was this was the equilibrium thing most economists at this point think that in most places of the no okay the US is a huge country and has very different areas right but the truth is a lot of economists think that the equilibrium price is on average already about ten dollars an hour you'll see that um and sometimes because a lot most jobs pay a lot of jobs pay more than that um and so if we let's say it's let's say minimum wage is let's say it's like 7.75 it's down here and we increase it minimum wage is ten dollars well what just happened well nothing I mean like people are like it really wouldn't lead to unemployment because we were already below it and so by increasing it there's no there's no short a surplus of workers and so really the question is how what should you know if we're going to raise the minimum wage how much do we raise it most economists think raising the minimum wage a couple dollars would be overall very beneficial to the economy because people would have more money to spend which is good for the economy that creates jobs all right because of that oh cons could be you might have less workers if you can't afford them if you pay if you're a small business that pays your workers minimum wage you might not be able to afford them um but if you get a but the thing is though if you get higher sales you might be able to afford them um you know less taxpayer money spent which is good because less assistance more people working that can actually help Drive wages down um and it also makes us more productive so so most economists think that you know if we really wanted to stimulate the economy and make it so that people the other thing is I think there's something to be said for the value of work you know I've made minimum wage when I was in high school and I supported myself I came from a very low income family and so I made 335 an hour and I had to live on that I mean I didn't have to pay rent I lived with my family okay but I had to buy my own food my own clothes my own gasoline and you know so I worked you know 20 to 30 hours a week while going to high school and I'd get my paycheck and you know let's see if it was 30 hours that I made so I made about three dollars an hour after taxes a little less than that so I make like 90 to work three dollar Thirty hours a week actually it was hard to work 30 hours and go to school so let's make it more like I make like between 60 and 70 dollars and I'm paying for gas and clothes and food you know there's something to be said that minimum wage should be high enough that people who work full-time should be able to support themselves and be able to pay rent and so um you know if we raise the minimum wage now it could a few dollars it could make a huge difference for Working Families it can make our economy grow because people be able to afford to buy more things more people will work but we have to balance that against the worries about higher prices and losing workers even though it might help gain workers overall but here's the thing what if we raise minimum wage to do 20 an hour okay then you start maybe this would be more of a surplus so as I said most economists believe and I won't speak for all because you know everyone has different opinions but we could like raising the minimum wage a couple dollars could overall probably the net benefit would be a lot higher than the cost raising it to twenty dollars an hour thirty dollars an hour that might have a lot more of the negative effects if that makes sense um so that's why when people just use this graph and say raise minimum wage is bad it creates unemployment for you guys to know now you'll be like no that's not the end of the story all right and that's the important thing for you to think it through okay because this will be in your lifetimes I mean everyone's lifetime they've talked about raising the minimum wage so people are like no raising minimum wage always increases unemployment that is not necessarily true it could actually decrease unemployment because people have more money to spend and they'll spend it it'll help grow the economy and create jobs and more people will work and it'll be great for everyone depends on where they put it though so then you keep an eye on that be like well how high are we putting it so it's not simple so people who try to tell you it's simple I want you to think for yourself okay because there's definitely pros and cons and it depends where we set it and then that's why there's no one right answer in economics which is kind of exciting so that's a price floor all right so then let's the next one we're going to talk about the other ones are not quite as well I don't know I kind of like so the next one's called quantity restrictions foreign restriction is when the government sets either literally a certain number it can be so you could set the government could set a quantity or they could set some sort of requirements now the example of this and it doesn't work anymore it's kind of weird that the world changes but in a textbook it's still going to be this so we've got price quantity is taxicab medallions and this has really been blown up in the olden days of before 19 before 2015 in most major cities like Chicago or New York in order to drive a taxi you had to have a medallion which is actually a coin thing and the um what happened was after World War II which a lot of weird econ happened a whole bunch of soldiers came back and they started driving taxis to find a job because they were really learned to drive in the war and and so what happened was wages went down because there was such a huge increase in supply of tax and cab drivers so in New York I think it was LaGuardia but I'm just guessing the mayor and actually in Chicago too in many many cities they said okay in order to drive a cab you have to have a medallion and they gave medallions to the existing maybe they said and there's going to be 10 000 of them and I'm making up that number but they said a certain number so we're going to call it ten thousand all right so 10 000 is how much cabs there's going to be no more so that is the supply so at every price there's ten thousand the government said so what happens well demand was like here so let's say it costs ten dollars to make a cab but then over time what changed since the 1940s supplier demand well I just said Supply never changes so demand people move to New York or Chicago people want to get more cabs so demands going up and what's happening to the price it's gone oh let's say it's twenty dollars now well before 2015. that's a 20. because if we dad over we'll say this is twenty dollars so prices are going up real fast because if we had a regular supply curve like this like right here look the price would be only down here not way up here so what happens with quantity restrictions is it leads to higher prices it increases prices and it does it increases prices because it it messes around it because it's it's limiting the supply no matter what kind it limits Supply either through different requirements or by literal numbers for your limiting Supply so um what happened with the taxicab World well we all know Uber Lyft other ride shares a lot of things happened pandemic things people didn't want to go into cabs but so what happened was that that actually increased by having Ubers and lifts and ride shares it actually increased um so I'm especially the new it actually increased the supply of cars of car hiring so it changed its supply curve to a normal supply curve by adding in all those lifts and stuff that's why like in London they banned Rideshare because they were protecting the taxi cab drivers in there um because also the taxi cab medallions they were selling for like a million dollars before Uber hit in New York in Chicago I think they were about three to four hundred thousand dollars and just to buy that to do that that didn't get you a car it just gave you the right to drive one you still had to get a taxi and so people would take out these loans it tended to be immigrants because immigrants tended to be um it was a good job because it paid well before 2015. it was a good paying job uh so a lot of immigrants the new arrivals so the country would do it they had so they'd have to get these loans and there were these banks that specialized in loans for believe it or not for taxi cab drivers to buy these medallions and then after the thing happened with Lyft and Uber and then it just turned into this and in fact it kept increasing the supply because everyone can drive for Uber what happened to the price went down the wages have gone really down so it's much cheaper now to get a than it used to be to get it because for a taxi or for a ride share it's much cheaper to get a ride in this country but the value of those medallions have gone to almost nothing and there's there's actually if you look into it it's there's some you know a lot of people so a lot of these banks have gone bankrupt that specialized in financing these but also um people have killed themselves because they're so overwhelmed with debt taxicab drivers that they can't pay back this million dollar loan they got on this and they you know their stuff stories of taxi cab drivers driving 24 hours a day trying to make enough money desperately trying to pay this off and they can't so it's really in fact maybe they could do some loan forgiveness for people I mean it's you know maybe they could put a tax on the Uber so try to pay back because not these people's fault but now suddenly they're taxi cab medallions are not worth anything so there's a whole bunch of interesting things around us but basically quality restrictions um increase prices now another kind of quantity of restriction and more common kind is when you have to be licensed right so let's talk about licensing so licensing requirements an example of this is to be a lawyer you have to pass the bar if you're a lawyer what other kind of jobs have to pass tests doctors have to pass the board exams a haircut right is someone cuts your hair so like hair to hip cut hair um you know you don't want people cutting your ears off honestly there's a lot that goes into cutting hair you know figuring out how to do it but also there's a lot of health and safety issues around cutting hair you know bartender um so I mean there's so many accountant I could just sit here all day right teacher right you have to pass certain tests to be a teacher not a college teacher but you do for a uh grade school and um you know your grade school and high school teachers so you can probably think of a lot of jobs that require licensing so some people rail against licensing like the government shouldn't be in you know making saying that you have to pass this test to braid hair or you have to pass this test to be a bartender anyone should be able to do it it's just them scamming I say no because okay one it does increase to higher wages because if you pass some of these tests you do get higher wages because these tests are a way of decreasing Supply if anyone could be a lawyer just by calling themselves a lawyer there'd be a lot more lawyers right and so it'd probably be a lot cheaper to see a lawyer but what's the downside to that the downside is quality so it leads to increase in prices but also it should lead and actually I would argue it does lead to an increase in quality and also just so that the lawyer if they pass the bar they know some law they can't just be somebody a doctor don't you want a board certified doctor to like do surgery on you I do so some people are against this licensing thing I and I agree it does it can lead to higher prices and honestly the other thing is too is if you go to all this extra school maybe you deserve if you do the bartending class or the haircut class or the account you take the CPA exam and you are more qualified and you should get paid at a higher rate than people who don't um so it does lead to higher prices which this also means appear higher wages but I don't think that's necessarily a bad thing because it also makes sure that the people know what they're doing so it leads to higher quality and knowledge and so I support I won't say I guess for all of these but I would say in general I think this is honestly a very good idea because and you will hear people be like it's crazy it's just to bring like I know there was a big case lately about people braiding hair but the thing is is that the products you can use on here people could burn your scalp and things so to have to be licensed I think makes sense because it's for health and safety so let's put that there so the models goes to health and safety and we want those things I mean I want those I expect that in people and so that's what licensing does and their knowledge is that I don't want you know someone doing my taxes that does not know what they're doing so this is so those are the pros and cons of quantity restrictions again they can be actually setting a number like we're only going to allow this many taxi cabs or we're only going to allow I mean it's rare to just be a number but let's just say in some countries it's not like we're gonna only have this many bartenders so if you're one of them and you pass you know you get to have higher wages because no one else can do it but in general in this country it's mostly about licensing we're going to have requirements for that job so it does decrease who can be it because you have to pass these certain things if you go to law school for three years trust me that was not fun the bar exam was not fun it was two days eight hours each day but at least even if you hire a lawyer you know you they have some love well they have to have done all those requirements before they can represent you and if you hire a lawyer it's usually for something pretty important so you want somebody who's going so licensing does um also give you some kind of quality uh assurance okay so that is quantity restrictions the next one I'm just going to be really brief on we might I can't remember if we talk about more this in in micro or not but excise taxes all right this is when and we actually already really talked about this honestly in chapter four but they have it in the book is separate and well we'll talk real brief so we already said if you text when excise tax is a tax on a good so it's paid by the supplier paid by supplier so um the example I think the book was about Yachts they put a like ten thousand dollar tax on yachts and it was paid it was an excise tax it was paid by the yacht makers and you know if you tax something it decreases and it decreases whoever is taxed so since a tax is the player it's a decrease in Supply and let's think if we decrease Supply remember decrease was always toward the the in in we want to move it in so let's always draw our line so we're gonna decrease Supply and it leads to higher prices all right so let's say Yachts cost I don't know it's probably more than a hundred thousand I've never shopped for a yacht but the thing to keep in mind and this is just very simple we're going to go up is that it goes up by the amount of the tax so let's say the tax is ten thousand dollars so what you do is you draw a DOT and you go straight up from the marketplace and that's but does it raise the price ten thousand look it didn't it raises the price let's say this is a hundred I know not to scale right 107 000. because what ends up happening is unless and in chapter six we're going to RX our next chapter we're going to talk a lot about this is that with taxes some of the burden is passed on to the to the to the buyers so their price goes up but usually you can't pass it all along otherwise you'll lose too many sales so some of the burden of the tax is also born by the supplier they get less profits and there's a balance between who pays how much and we're actually going to be able to calculate that depending on the product um if it's a product like insulin we're going to talk about is very it's called elasticity but you know if insulin which you need to live if you are a type 1 diabetic if it goes up by a hundred dollars a vial how much of that will the buyer be willing to pay I would say all the hundred dollars because they're going to die otherwise so the supplier can just keep on raising prices which is why drug prices are so expensive if it's a yacht do you have to buy a I mean I guess if you want to yeah but you don't really have to buy that so people might might be like so with a ten thousand dollar tax it's more going to be shared most products it's shared the burden so even though remember we drew this line right here and it went up from here to here the just remember it goes up so it shifts up by the amount of the tax but the price unless it's something that's called perfectly um inelastic which we're going to talk about next month so don't I mean next week so don't worry about it quite yet but it usually it goes somewhere in the middle of the tax and the price will go up in the middle between the amount of the tax and where it started because you know the the buyers will pay a little more and the suppliers will lose some profits it's kind of in the middle all right so that's basically excise taxes and the last one is called third party payer all right this is kind of fun all right this is when the the demander all right so the person who's the person who's demanding the goods I guess we'll call them the demander the buyer does not pay the full amount so if you're not paying the full price not just you but people are paying the full price or the full amount are you going to demand more or less if you're not paying for like all of it you're going to demand more right because then it makes it relatively cheaper for you so you're going to increase demand so an example of this is health insurance so let's say Healthcare Supply demand let's say seeing the doctor is so expensive let's say it's 150 if you pay out of pocket and if it's 100 I'm gonna go 10 times a year okay and this is health care this is also another graph that is taken out of context just like the graph so nice when you understand I'm sorry I'm writing Healthcare graph but I just don't need to say graph let's see if I can erase this I shouldn't talk and uh so it's just called Healthcare all right there's no graph this is another graph that is taken out of context just like the graph I was saying for um how the one graph people say well this proves that um raising the minimum wage is bad for workers no it's not that simple just like this graph it's not that simple but some people will show you this graph and be like this proves health health insurance is bad nope not that simple aren't you glad you're an economist so you can think for yourself okay so let's say this is for healthcare you go to the doctor at 10 or a few dollars now if you um if you get health insurance and I remember I grew up without health insurance it was really hard um it was really hard my both my parents employers did not offer it it was before Obamacare and you didn't have to offer health insurance to your uh employees with my parents worked no health insurance five kids it was very hard so we never got to go to the doctor and we were very sick my mom actually ended up dying as cancer and in her um when I was a teenager in part because she didn't go to the doctor when she felt tumors because we couldn't afford it and she didn't think it was that big a deal I mean how did she know she was like who knew anyway it was really bad so for health care for me is a big issue um not having access to it I know for personal experience is very difficult I was that kid in seventh grade that coughed I probably had pneumonia I was coughing up blood in class I coughed for probably my entire seventh grade year you know Middle School is pretty hard never could see the doctor because we couldn't afford it probably have long problems to this day so it is very difficult Health Care is very expensive right so I remember when I was in college um my dad uh employer decided to offer health insurance for the first time and so he was in computers which was new back then and they decided hey maybe computers are going to stick around so we are going to actually give people benefits so our co-payment was 20 I will never forget my dad handed me this card I'd never had a health insurance card I was probably 21 years old I was in college and he said this is a health insurance card you because I never went to the doctor right he goes you can go to the doctor now and it'll cost you twenty dollars honestly it like it was like a miracle all right I you can't imagine how much has changed in my life I'd always got migraines never gotten medicine I could go to the doctor so that's the thing I could go to the doctor because at twenty dollars let's dot across well here's a supply but because because but but it's really not because really let's go okay let's dot across so the demand now is here so now people are going this person is can go to the doctor 20 times a year but is the supply really here no the supply and we're gonna keep this simple well we're at 20 times a year the supply is up here okay where it hits the supply curve because we're going 20 times because that's what the price is set at and the supply is here and then really now what's the price up here the price is maybe 180. so what's going on here like what is the square why is there a square it's because you know the demand the price is set at this copayment at twenty dollars so having health insurance means that you are not bearing the full cost of going the doctor so you'll go to the doctor more and this is the graph people use to say health insurance is bad because people start using it too much well it's that is simply not the case because it's not that simple nothing economics is so who's paying the 180 the insurance company is okay that's who's paying so if you've ever looked at your explanation of benefits you might be paying twenty dollars but the insurance company is paying their rest and they have an agreement and they pay a certain amount per thing but so who's paying the insurances company so are people is this bad is health insurance I mean people are going to the doctor more and it's costing more and this was used again this this graph was used for ObamaCare saying we should not let people have insurance because we go to the doctor too much and it's gonna cost more but why could offering Insurance actually cost less to the market and this is the rest of the story and you can think about it and I can think about it so as I said I didn't have health insurance growing up so I didn't go and we were very sick my mom ends up you know having stage four colon cancer because she just didn't go for two years because she couldn't afford it and then what did she end up you know we have all these medical costs she ends up dying is dying good for the economy no it actually isn't not just because it was my mom but dying is bad for the economy she left five children she could have been working she was very young We Were Young it was it was really horrible so by having health insurance it's more affordable what ends up saving money and is good for the economy is that people go sooner so you have more preventive care and it costs a lot less overall so this decreases prices overall so before there was people when people don't have health insurance and before you know it used to be as soon as you're in college you got thrown off well if you're out of college you got thrown off your parents health insurance I mean like so most people a lot of people did not have insurance you know you if you were so sick where would you end up in the emergency room so people who had I had a friend when I was in my 20s that um didn't get the insurance didn't have insurance and ended up um didn't go to the emergency room was not feeling well and then he finally went and his appendix actually burst and he almost died he ended up he was only 24 he ended up in the uh intensive care for like two weeks I mean he really almost died he had to go bankrupt because it ended up he didn't have insurance and it ended up costing him I don't even know two weeks in intensive care a million dollars I have no idea in all that surgery to save him so he had to go bankrupt okay is that good for anyone no because the hospital loses that money right because they had they had to save him I mean and also it's not good for him because he's bankrupt or he has giant medical bills the number one cause of bankruptcy in the US is medical bills is it really fair that just because you're the one who gets sick you can't now you have to go bankrupt most countries in the world everyone has health insurance so health insurance is not even a worry I would love to live in a country like that because it's always been a big worry of mine obviously but also so hospitals are better off when everyone has Insurance because then people can pay their bills number two people will go earlier he would have gone to the doctor earlier it would have saved so much money for him and the hospital also chronic illnesses people with diabetes arthritis all sorts of minnesotally diabetes heart disease high blood pressure if they can go for twenty dollars and get a checkup and then they get their blood sugars are correct they can like monitor their heart uh their blood pressure that is so much cheaper than waiting for a diabetic crisis or having a heart attack and ending in the hospital and that's what ended up happening before people didn't have health insurance so and also less people dying if you have health insurance you were less likely to die it is a fact because you can go to the doctor and and so not having people die is better for our economy even if you don't care about people it's still better for our economy because they can take care of their families they can work and they um it's better to have people alive it just is especially workers all right so preventive care so it actually can lead so even though this graph shows that yeah more people are going to the doctor but it actually can so this graph is not the end of the story all right this graph and and there are many people who use this graph as the end of the story and saying people shouldn't have health insurance because we'll go to the doctor too much well actually we'll save money we'll be healthier so it actually can lead to you save money because they're a lot less of the um High you know people that have less heart attacks they have less of you know big huge medical expenses because you can do preventive care which is way cheaper way cheaper just to have your diabetes monitored every month than it is to not and then suddenly you you lose your kidneys and now you're on dialysis and you lose your leg okay way cheaper and better for you and it's more productive for workers so workers can be more productive when they're healthy I know so um so the thing to keep in mind about the third party and then people are more alive which is better too the thing to keep in mind so for you guys because this will come up is that when people say health insurance increases costs okay health insurance might increase demand down here because people can go to the doctor more and yeah you might end up having more preventive care visits or lower but overall it can decrease costs it can lead to a healthier Workforce um you know and and that's why almost every country in the entire world including China Thailand everyone has health insurance like we're one of the only countries that doesn't and that also the other thing to keep in mind I almost forgot this part is it really only 20 to see the doctor if you have health insurance through your employer you pay a premium every month at my uh my at my husband's company we are paying um I think it's like 700 a month for family care and then we have a deductible of like five thousand dollars right so this is very misleading too and that this doesn't include your premium you know I'm paying so if I'm paying let's say 700 a month plus five thousand dollar deductible this is per month so what's seven times twelve oh people I should use this 90 wait 84 000 or 800 I'm paying like 13 400 out of pocket plus this so this is very a misleading graph um and so it's not this simple right this doesn't include your premiums it doesn't include deductibles it doesn't include other things so the so I guess the bottom line is third party payer means that we are it's a way to encourage people to use something this is also for subsidized student loans if we give you money to go to school then you're not paying the full price and you're going to go to school more why do we do that because an educated population is good for our economy and it's good for you but it's also good for our economy so on things that we do we we sort of subsidize then you're not paying the full price we are encouraging people to do and we maybe we do want people to go to the doctor when it's cheaper and it will save money overall so don't be fooled by when people say well this graph shows too many people go to the doctor well it's not that simple and that's why you guys are awesome economists because you it's so aren't you glad it's so good to be an economist all right so hopefully I can figure out how to stop oh I think I go around here first stop sharing my screen all right so I'm gonna stop prison I'm gonna go back to you guys all right so today we learned about what happens when the government interferes with supply and demand curves as we just said so we've got our price ceilings which is when the government sets the price below equilibrium price like rent control like setting money um setting prices on consumer goods gasoline rice tortillas and we know it creates shortages because you can't get above the ceiling okay even though it's low you can get this like price floors at the top you walk across the floor and that's when the price they set above the equilibrium price minimum wage is an example of that but maybe it isn't right we went through that there were some pros and cons because nothing in econ is that simple so when people tell you it's simple be suspicious number three quantity restrictions um is when the government sort of decreases the supply by putting an actual decrease a number or they have different um rules about who can be like licensing requirements so some people like government should stay out it shouldn't stop right you have to take a test for a bartender well it's not right you can poison people as a bartender either so it actually leads to it does lead to higher wages in those Industries but also can lead to higher quality and competency which I think is very important in many things so if there's a trade-off I'm for licensing I want my doctor knowing what they're doing and lawyers too people and my hairstyle is just cutting the ear thing kind of freaks me out um we also talked about excise taxes remember it just goes up by them on the tax but the actual how much you pass along we'll talk about in chapter what we might talk about later it does not um change and then also um the uh third-party payer shows that when we decrease the price and you don't pay the whole price so this is where the the you the consumer doesn't pay the whole price it's shared with an insurance company or with subsidized loans with the government we're encouraging you to do more of it which could lead to higher prices but probably doesn't because in health care at least it allows people to go to the doctor more and does more preventive care and saves you money overall all right so that's the end of chapter five and I will meet up with you guys soon have a good day