Price Ceilings and Floors- Micro Topic 2.8

Price Ceilings and Floors- Micro Topic 2.8

Hey! How you doing Econ students? This is Mr. Clifford. Welcome to ACDC Econ. Right now I’ll talk about price controls. [ energetic music plays] 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 equilibrium and 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 convince them to get the prices lowered 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 that the government sets so the price cannot go up to equilibrium. Again, the ceiling is the maximum price a seller is allowed to charge. So do you support the idea of having the price down here at one dollar 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 and you would actually vote for this and say, “Hey this is a great idea!” BUT taking this class helps you realize
this is a HORRIBLE idea. If we lower the price for gasoline,
that means the quantity demanded 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 supplied 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’s going to mean 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 200 gallons of gasoline produced,
now we only have 50 gallons produced. This is the idea of Price Controls – when
government comes in to control and manipulate prices Now there are some exceptions but for the most part competitive markets should be left alone because the government may come in,
it’s going to mess it up, and
cause a shortage or a surplus or some misallocation of resources. Another example of a Price Control 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 high Let’s assume that the equilibrium price for corn is
$10 for let’s say 50 units. [quietly] What’s a unit of corn? [quietly] Is it like.. a gaggle.. of corn? [quietly] Is it like a box of corn? Again, let’s say that 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 supplied goes up.
Producers want to produce more And in this case they want to produce 100 At that new price of $30,
consumers only want to buy 30 units. So it turns out this policy actually doesn’t even help those producers because nobody’s buying the corn. And of course there are exceptions to this but in general competitive markets should be left alone. A floor is going to lead to a surplus And a ceiling is going to 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 going to have an effect on the market. Think about it. If a ceiling is above equilibrium
it’s not going to have any effect 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 also applies to a floor.
A floor has to be above equilibrium For example, if they said,
“You can’t sell corn for less than 10 cents!” The producers are going to be like,
“We’re not trying to sell it for less than 10 cents”. So it’s going to have no effect. All that being said,
A ceiling goes below equilibrium and
a floor goes above. It doesn’t matter if you’re enrolled in Macroeconomics or Microeconomics Because you’re learning exactly
the same concepts up to this point In Unit 1 you talked about Production Possibilities Curve and scarsity and absolute comparative advantage and now you’ve learned about supply and demand and shifts in the curve and ceilings and floors But if you’re taking Macroeconomics Now you’re going to talk about the overall economy You’ll begin 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 going to stick with markets but go into a lot more detail For example, you’re going to 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,
be sure to go to my channel menu. This has all the links you need for
Micro- and Macroeconomics. Another couple videos 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 those key concepts And again, I give you links to different videos on my YouTube channel. Alright! Don’t forget to subscribe and come back often Because I’m making a BUNCH of new videos, alright? Til next time! [even-paced music plays]

100 thoughts on “Price Ceilings and Floors- Micro Topic 2.8

  1. This seems to be true about lots of things. But healthcare doesn't follow this law. Neither do wages. Or many services. Which he hints at when he says "of course there are exceptions to this". Gas prices are set by OPEC anyway and the countries involved are among the richest in the world, so even that example seems to just be proof that America cannot do price setting. But America has had ceilings and floors without drastic economic consequences. Price ceilings and floors can be done, they just cannot be done without pissing of corporate America -who were fine with price ceilings and floors when they were the ones colluding to set them. I like how this video explains things but I just do not buy the explanation when there are so many examples that ignores this.

  2. but for example, if the regular price is 10$ with a demand of 50, that's 500. like what you said, if prices go up to 30$, quantity demanded lowers to 30 and farmers still get more than the 500$. they now get 900$.

  3. I am absolutely opposed to a national ID card. This is a total contradiction of what a free society is all about. The purpose of government is to protect the secrecy and the privacy of all individuals, not the secrecy of government. We don't need a national ID card. — Ron Paul

  4. the best part is that you talked about the confusion and then cleared it again… hats off to you sir 🙂

  5. I have my mid terms quiz coming up tomorrow so i have been seeing this dude's face for HOURS but you have no idea how much i enjoy econs now simply because i start to understand the theories! MILLION thanks to you sir

  6. dude you literally just saved me while taking an online quiz in my dorm, i didn't understand this unit at all

  7. I wish I would of realized sooner that when doing school online, all you need is youtube, thanks Jacob!
    These videos are making this class i'm taking so easy, I feel like its cheating, haha

  8. Your videos are really helping me understand these concepts as a new microeconomic student! p.s. a unit of corn is a bushel 🙂

  9. Jacob , you've done an amazing things for us . its so great to learn these subjects with you , im getting stuck to understand this , and you just helped me a lot . I thought economics is boring until…ive watched your lectures . Thankssssss

  10. But if gas and other commodities were cheaper, we wouldn't need as much gas, because we wouldn't have to go to and from work as much.

  11. This sounds more like capitalist propaganda than sound economics.
    If corporations are charging dozens or hundreds of times more than they have to for x goods or services, than a reasonable price ceiling on x goods or services won't reduce the amount of x goods and services they can provide us with.

  12. I'm just watching your videos in preparation towards my upcoming IGCSE in May/June. They are very straightforward and it's like I'm refreshing my memory!

  13. Yea i get it but why don't producers want to produce very much? Is it because there won't be enough money/make enough money to peak their interest? Or is it because they will lose money trying to sell it that cheap?

  14. "Hey! COOL AC/DC BELT!" My classmate noticed it right away and the video is helping us prepare for our assignment and test.

  15. You are talking too fast. Slow down. Also show more math. You did not show why there is resulting inflation when there is a price ceiling.

  16. So sellers reduce production, how about closing any loopholes, and banning any production reductions.. and if a seller don’t like it then get out of the business..

  17. Dude, I LOVE YOU :)… I failed in Economic Principles before only because I didn't know about your channel at that time. Thanks!

  18. But isn't gas a need? Meaning won't, people, buy it regardless of the price because they need it? I guess that electric cars are an alternative but I doubt many will sell their car to buy a new, electric one.

  19. Great educational video! But I got sooo dizzy watching you turn back and forth. Thank you this was very helpful!

  20. Do a video about how an increase in the supply of labor, e.g. illegal immigration, feminist movement, drives salaries and wages down, and that THIS is the why salaries and wages have remained stagnant for so long.

    Then conclude that anybody who supports illegal immigration and feminism (liberals) while at the same time claiming to want to help the average American, is obviously full of $hit, and that such a person obviously does not possess a basic understanding of economics and should therefore be excluded from taking part in public discourse related to such matters (and probably all other matters as well).

    Then after that, watch all the liberals complain.

  21. If the firm were to stick with the price floor, in your example, they would earn more money than at the equilibrium price. If they supply at a quantity of 30 and a price of $30, then revenues= $900; whereas at equilibrium, a quantity of 50 and price of $10 only equals a revenue of $500. You should change up your example so you do not have this discrepancy.

  22. what can i say You are amazing Watching all your vids I will buy your Macro set after i done with my micro exam

  23. What if the free market doesn't supply a good at socially optimal level? Couldn't a price ceiling on health care products help middle and low income households to buy expensive medicines. Would a subsidy be more beneficiary ? Thanks for answers 😎

  24. But what you can't prove is that the supply of gas is elastic. And until you can do that, you are just a windbag … Stop making people more stupid!

  25. A little too much energy, but I enjoyed it all they … he kept me interested with that bit of humour and most importantly I FINALLY UNDERSTAND !!!

  26. The gasoline example is actually a bad choice because gas is an inelastic good which means people buy it regardless of price because it is necessary

  27. My teacher just drones on for two hours…it would be a better use of everyone’s time if she just posted links to these videos and gave us weekly quizzes lmao

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