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Essential Question:Essential Question:Explain the difference between a Price

Ceiling and a Price Floor (explain why these are created and problems that they can create), Define the term rationing and the problems that rationing leads to, and define the term Black Market

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Reasons governments set prices:Reasons governments set prices: to keep the market functioning smoothly to avoid instability caused by dramatic

price swingsTo protect public good from suffering due

to issues created from a capitalist system- ie: Too high or Too low prices

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Price Ceiling:Price Ceiling: A Price Ceiling is a govt. regulation that limits

how high a price can increase to. The intentions: Ensure that when highly

demanded goods or services have a limited supply, the price cannot increase beyond what the majority of needy consumers can’t pay.

The Consequences: Producers do not have the incentive to produce more resulting in a continued state of limited supply

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Price Floor:Price Floor: A Price Floor is a govt. regulation that limits how

low a price can decrease to. An example is minimum wage

The intentions: Ensure that even though there may be low demand for a product, producers do not stop producing that product resulting in massive shortages that harm public good.

The Consequences: Consumers may be forced to pay a higher price than they should OR taxes are used to provide subsidy.

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Rationing:Rationing: Rationing is a system where the government or

other organization decides how to distribute goods. Intention: Ensuring that goods with limited supply

are distributed as evenly as possible, not allowing people to consume extra even if they can afford to

Consequence: When consumers are denied the quantities that they demand, they turn to Black Markets to obtain them.

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Issues with Black MarketIssues with Black MarketBlack Market violates law and encourages

criminal activityOften times goods are sold at super high pricesOften times goods are fake or of questionable

qualityThis leaves consumers unsatisfied with no way

to adjust.

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