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For more information, please see full course syllabus of AP Microeconomics
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Lecture Comments (9)

2 answers

Last reply by: Professor Jibin Park
Mon Oct 3, 2016 7:30 PM

Post by Jasper Lin on September 6, 2016

When the government set a price floor on airline ticket prices, why wouldn't the airlines just maintain the same low quality at the higher prices? After all, their competition would also be forced to have higher prices.

1 answer

Last reply by: Professor Jibin Park
Fri Sep 25, 2015 2:27 PM

Post by Gino Phapornchai on September 23, 2015

Hi Mr. Park
I got confused with "Inefficiently high quality" when the price floor causes inefficiency, doesn't lack of workers lead to low quantity and low quality of product as well?  

1 answer

Last reply by: Professor Jibin Park
Sun May 11, 2014 4:16 PM

Post by serene guo on May 11, 2014

professor, why there is "Effective price ceiling", and then "how a price ceiling causes ineficiency? so whether the price ceiling is effective or not?

1 answer

Last reply by: Professor Jibin Park
Tue Mar 18, 2014 12:44 AM

Post by Harshil Bansal on March 18, 2014

The last example was really good.

Price Controls

  • Price controls are inefficient because they distort market outcomes.
  • An effective price ceiling will create a shortage because it will be below the equilibrium price.
  • An effective price floor will create a surplus because it will be above the equilibrium price.
  • Price controls are intended to help out producers and consumers but oftentimes have unintended consequences.
  • Rent control causes an excess demand of apartments and hurts tenants who can afford the housing but don’t get it because there aren’t enough available.
  • Minimum wage causes an excess supply (of labor) because people want jobs at that wage level but there’s not enough employers willing to hire them at that price.

Price Controls

Lecture Slides are screen-captured images of important points in the lecture. Students can download and print out these lecture slide images to do practice problems as well as take notes while watching the lecture.

  • Intro 0:00
  • Lesson Overview 0:12
  • II. Product Markets 1:01
  • Why Price Controls are Inefficient 1:51
    • Price Controls
    • Price Ceiling
    • Price Floor
  • Effective Price Ceiling 4:08
    • Rent Control
    • Effective Price Ceiling Must be Below Equilibrium Price
  • How a Price Ceiling Causes Inefficiency 6:36
    • Inefficiency Allocation to Consumers
    • Wasted Resources
    • Inefficiently Low Quality
  • Effective Price Floor 8:45
    • Minimum Wage
    • Effective Price Floors Must be Above Equilibrium Price
  • Price Floor on Agricultural Products 13:42
  • 'Butter' Mountain 16:09
  • How a Price Floor Causes Inefficiency 17:41
    • Inefficiently Low Quantity
    • Wasted Resources
    • Inefficiently High Quality
  • Example 1 20:05
  • Example 2 21:12
  • Example 3 22:36
  • Example 4 23:46
  • Example 5 25:06