Stanford University Price Controls and Their Impacts Summary

Price Controls and Their Impacts

One of the major types of government intervention in markets is price controls. The government intervenes to regulate prices by imposing price controls, which are legal restrictions on how high or low a market price may go for certain products. Price ceiling is the maximum price sellers are allowed to charge for a good or service, whereas price floor is the minimum price buyers are required to pay for a good or service. These price controls may have adverse impacts on productive and allocative (marketing) efficiency. However, price controls are used despite their well-known problems.

Based on the Reading in Chapter 3 on price ceiling and price floor, explain the impacts of the following price control measures.

• What would happen to the supply and demand of Super Bowl tickets if the government mandated that no more than $20 a ticket could be charged?
• What would happen to supply and demand if a law passed dictating that kindergarten teachers could make no less than $100,000 per year?

Do the discussion first then do the response posted down below.

Posted 1

Price ceilings are laws enacted by the government to regulate prices. This can be very beneficial, however, when a price ceiling is set below equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result (McConnell, 2021). In this scenario, should the government mandate that the price of super bowl tickets be no more that $20, the demand for these tickets by customers would increase significantly, however there would be an issue of shortage, that is the tickets would sell out fast especially if there is only a fixed number of tickets available. This price ceiling enacted will cause the suppliers of the tickets to lose potential revenue and those who do not get the chance to purchase the tickets become very unhappy.

Price floors are also laws enacted by the government to regulate prices; it is the lowest legal price that can be paid in the market for a product/service (McConnell, 2021). If the government mandates a price floor that kindergarten teachers could make no less than $100,000 per year, the demand for the teachers would decrease if the regular market salary is less than the government price floor. This would most likely result in an increased rate of kindergarten teachers being unemployed or cause the market to become extremely competitive because there is going to be an increase in the supply of kindergarten teachers while the demand for these teachers would be low, creating an excess/surplus of kindergarten teachers in the market.

Reference

McConnell, C.R., Brue, S.L., & Flynn, S.M., (2021). Economics: Principles, Problems and Policies. McGraw-Hill Education.

Posted 2

Price controls would lead to manipulations of the supply and demand curves that cause additional issues in the markets. Markets without the controls are designed to reach equilibrium so that supply meets the demand at the set price. Price controls mess with that balance.

If Super Bowl tickets were fixed at $20 a ticket, the demand for tickets would rise significantly. A lot more people would try to buy the tickets. However, the Super Bowl is a specific event that only occurs once a year. The stadiums for the Super Bowl are already built so additional seating cannot be added. Seats to the game would be the supplies in the supply and demand curve. No additional supplies can be added to meet the rise in demand. More people will want to buy tickets than there are tickets to buy. This will lead to a ticket shortage. Many consumers will be unable to purchase the tickets they want and will be disappointed. This is what happens when the price is fixed at less than the demand.

If kindergarten teachers were required to be paid $100,000 or more, then there would be a lot more people wanting to become kindergarten teachers. Right now kindergarten teacher pay is significantly less than $100,000. More people would want to become a kindergarten teacher for the pay. This would lead to an increase in the supply of kindergarten teachers. However, the pay change would not change the number of schools or the number of kids who are kindergarten aged. The number of elementary schools may even decrease if the district is not able to budget to pay the increased wages for the kindergarten teachers. Many of the qualified kindergarten teachers would be unable to find jobs as there is no additional demand for the jobs. There would be too many teachers and not enough teaching positions under this price control.

Reference

McConnell, C. R., Brue, S. L., & Flynn, S. M. (2018). Economics: principles, problems, & policies. McGraw-Hill

Posted 3

Consumers and producers generally want a market where the supply can adequately meet the demand for products and services. This allows for prices to remain steady and avoid abundances or shortages.

What would happen to the supply and demand of Super Bowl tickets if the government mandated that no more than $20 a ticket could be charged?

If the government were to determine a price ceiling for the Super Bowl at $20 a ticket, demand would surge and the NFL and the host stadium would be totally unable to meet it. Super Bowl tickets may be priced exceptionally high, but they always have the demand to fulfill their seats and are able to earn their standard revenue for the game. The governments setting this minimum would be an overstep of authority and cause several unavoidable issues. The game would now be a diluted experience due to the lack of revenue to produce the standard show, it would harm consumers who rely on the viewership of commercials, the merchandise sold, and the employees working the game. This change would affect the tastes, number of potential buyers, and income level needed to purchase tickets (McConnell, Brue, & Flynn, 2017). Ultimately this unrealistic change would cause a major decline in the quality of the event, quality of the spectators, quality of services provided, and the NFL being overcome with ticket requests they are not able to meet.

What would happen to supply and demand if a law passed dictating that kindergarten teachers could make no less than $100,000 per year?

We frequently hear about teacher shortages or unfair wages paid to public servants, like teachers, but a price floor of $100,000 would be unimaginable. One would assume that a kindergarten teacher would be a skilled position requiring a high school diploma and an undergraduate degree, but there are several kindergarten teachers per school and they would not be deemed skilled enough to earn $100,000 a year. The large increase in their base salary will lead to an influx in supply with no increase in demand. This increase in supply may mean applicants that are over-qualified, or salary driven rather than educators that are passion driven.

It is essential that ceilings be set on items with limited access that are required by all (McConnell, Brue, & Flynn, 2017). Everyone needs Kindergarten teachers but there is not limited access to them as it is a standard educational requirement. There is limited access to Super Bowl tickets, but everyone does not need them. Electricity and gas are essential items that everyone needs and large companies who produce these items must be capped so that they are equally available for everyone.

McConnell, C., Brue, S., & Flynn, S. (2017). Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics). 21^st Edition. McGraw-Hill.