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Price Floors and Price Ceilings
Surplus –
Shortage –
Price Floor –
Price Ceiling –
Market Clearing Price (equilibrium price) –
Market Price –
1. What is the market clearing price (equilibrium price) in the graph below? (B)
2. What quantity is demanded and what quantity is supplied at the market clearing price? (B)
Quantity demanded_______________
Quantity supplied ___________________
3. What is the quantity demanded and quantity supplied if the government passes a law setting a
maximum price of $30? (C)
Quantity demanded_______________
Quantity supplied ___________________
4. What quantity would be demanded and what quantity would be supplied if the government passes a
law setting a minimum price of $80? (A)
Quantity demanded_______________
Quantity supplied ___________________
A
B
C
Price floor examples:
Price ceiling examples:
What Will Happen If?
Directions: Read the following descriptions and decide if there will be surplus or a shortage of the product in
each situation. Check the correct answer and explain your reasoning.
A. A very popular singer is coming to a town to perform a concert in a concert hall that seats 10,000
people. The ticket price for the concert is $30.00 per person. There are 30,000 fans in the area who are
willing to pay $80.00 per seat to listen to the concert. What will happen?
Shortage of seats ___________ Surplus of seats ____________
Explanation:
B. A very popular singer is coming to town to perform a concert in a concert hall that seats 10,000
people. The ticket price for the concert is $30,000 per person. There are 3,000 fans in the area who are
willing to pay $80.00 to listen to the concert. What will happen?
Shortage of seats ___________ Surplus of seats ____________
Explanation:
C. The Ford Motor Company has designed a new car that resembles a Ford model that was popular 40
years ago. Ford plans to produce 100,000 of the new-old cars each year. Ford will price these cars at
$24,000 and require dealers not to change that price. There are 200,000 people per year who wish to
buy the car. What will happen?
Shortage of cars ___________ Surplus of cars ____________
Explanation:
D. The Fish and Wildlife Department in a West Coast state decides to allow people to dig for razor
clams on the ocean beaches three days each year. There is a small charge ($10) for a license to dig
these clams. Millions of people enjoy eating razor clams. During most of the year they buy razor clams
in fish markets for $20 to $30 a dozen. What will happen on the days when people can dig razor clams
for themselves?
Shortage of clams ___________ Surplus of clams ____________
Explanation:
E. Schools ask students to take good care of their textbooks during the year and to return them on the
last day of school. Often students turn back the books in poor condition. In an effort to encourage
students to take better care of the books, the School Board offers to pay students $2,000 for any
textbook returned in good condition. What will happen?
Shortage of textbooks ___________ Surplus of textbooks ____________
Explanation:
Price Floors and Price Ceilings
KEY
Surplus – when the quantity supplied at a specific price exceeds the quantity demanded
Shortage – when the quantity demanded at a specific price exceeds the quantity supplied
Price Floor – a minimum price consumers are required to pay for a good or service
Price Ceiling – a maximum price consumers may be required to pay for a good or service.
Market Clearing Price (equilibrium price) – The point where supply and demand curves intersect and
supply and demand are in balance
Market Price – the price a willing consumer pays to a willing producer for the sale of a good or
service.
1. What is the market clearing price (equilibrium price) in the graph below? (B)
$50
2. What quantity is demanded and what quantity is supplied at the market clearing price? (B)
Quantity demanded _____120_______
Quantity supplied _______120_________
3. What is the quantity demanded and quantity supplied if the government passes a law setting a
maximum price of $30? (C)
Quantity demanded _____160_______
Quantity supplied ______60___________
4. What quantity would be demanded and what quantity would be supplied if the government passes a
law setting a minimum price of $80? (A)
Quantity demanded ____60________
Price Floor
Quantity supplied ________220_______
A
Market Clearing Price (equilibrium price) B
__ Price Ceiling
Price floor examples:
Minimum wage
__ ___
C
Price ceiling examples:
Rent control
What Will Happen If?
Directions: Read the following descriptions and decide if there will be surplus or a shortage of the product in
each situation. Check the correct answer and explain your reasoning.
A. A very popular singer is coming to a town to perform a concert in a concert hall that seats 10,000
people. The ticket price for the concert is $30.00 per person. There are 30,000 fans in the area who are
willing to pay $80.00 per seat to listen to the concert. What will happen?
Shortage of seats ____X______ Surplus of seats ____________
Explanation:
Market price is set below equilibrium price and more people want to buy tickets than are available.
Demand is greater than supply.
B. A very popular singer is coming to town to perform a concert in a concert hall that seats 10,000
people. The ticket price for the concert is $3,000 per person. There are 3,000 fans in the area who are
willing to pay $80.00 to listen to the concert. What will happen?
Shortage of seats ___________ Surplus of seats ____X______
Explanation:
Market price is set above equilibrium price and more seats are being offered than people want.
Supply is greater than demand.
C. The Ford Motor Company has designed a new car that resembles a Ford model that was popular 40
years ago. Ford plans to produce 100,000 of the new-old cars each year. Ford will price these cars at
$24,000 and require dealers not to change that price. There are 200,000 people per year who wish to
buy the car. What will happen?
Shortage of cars ____X______ Surplus of cars ____________
Explanation:
Market price is set below equilibrium price and more people want to buy cars than are available.
Demand is greater than supply.
D. The Fish and Wildlife Department in a West Coast state decides to allow people to dig for razor
clams on the ocean beaches three days each year. There is a small charge ($10) for a license to dig
these clams. Millions of people enjoy eating razor clams. During most of the year they buy razor clams
in fish markets for $20 to $30 a dozen. What will happen on the days when people can dig razor clams
for themselves?
Shortage of clams ___________ Surplus of clams ____X______
Explanation:
Market price ($20 - $30) is set above equilibrium price ($10) and more are digging their own clams.
The fish market will experience a surplus of clams for the three days.
Supply is greater than demand.
E. Schools ask students to take good care of their textbooks during the year and to return them on the
last day of school. Often students turn back the books in poor condition. In an effort to encourage
students to take better care of the books, the School Board offers to pay students $2,000 for any
textbook returned in good condition. What will happen?
Shortage of textbooks ___________ Surplus of textbooks ____X______
Explanation:
Rent Control Discussion
What would your group suggest to solve the problem and why?