Transcript Shortage and Surplus - Appoquinimink High School

Today’s Warm Up
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Why would it be harmful to consumers if a
law was passed that prevented the price of
bottled water from increasing above 25
cents?
Let’s Review…
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Not all markets are ones in which price is
allowed to move freely – government may set
some price controls
Prices set by a law differ from the equilibrium
price
This creates inefficiencies in the market as a
shortage or surplus will always occur
Why are price controls
inefficient?
Price Ceiling (max. price)
 A shortage will always
result
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QS < QD
Price is set < Equilibrium
Inefficiencies: Consumer
demand is not being met
since price serves as a
disincentive to producers
Price Floor (min. price)
 A surplus will always
result
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QS > QD
Price is set > Equilibrium
Inefficiencies: Suppliers
are wasting resources by
producing too much
Why does this happen?
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Rules establishing price don’t change the
basic rule that people act in their own best
self-interest
However, new rules (price controls) may alter
available options
Consumers may make different choices than
what they would have in the absence of rules
Activity 1: Wheat Game
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Rules will stay the same – except no price
can go higher than $3.00
This will make it easier for everyone to
purchase wheat… YAY!!! (Right???)
Explain what happened…
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A price ceiling was set, and the price of
wheat couldn’t exceed $3.00 (Remember,
equilibrium price was $6.00 per bushel)
What did you experience during this round of
the game?
Secondary Effects of Price
Ceilings/Floors 
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There were more buyers trying to buy than
there were sellers trying to sell
Some people made illegal deals by selling for
more than $3.00
Some sellers got tired of selling at such bad
prices and boycotted the market
In the end, the market wasn’t working very
well 
LEQ 2 – The BIG concepts
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Consumers & producers make
economic decisions that are in their
own best interests
This is represented by demand and
supply and drives the market towards
efficiency (equilibrium)
Efficiency is getting the most out of
one’s resources at the least cost. In
this manner, resources are allocated to
their most highly valued use.
Even with the best of intentions, price
controls (ceilings & floors) create
inefficiencies in the form of shortages
and surpluses – WASTED
RESOURCES!!! 
Activity 2: Think, Pair, Coach
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Person A – complete side A
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Person B – Complete side B
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Explain your answer to Person B
Person B will say “Yes, that’s correct! Great
job!”… Or, they will explain what you did wrong
Explain your answer to Person A
Person A will say “Yes, that’s correct! Great
job!”… Or, they will explain what you did wrong
Alternate until all questions have been
completed.
Practice Problem
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A local law has passed in Middletown, DE
preventing rent from increasing above $500.
The equilibrium price for rent is $1,000. What
will happen?
(circle one)
___ Surplus in rent ____ Shortage in rent
 Provide a graphical representation
 QS is _________ than QD
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Create your own scenario!
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On poster paper, create your own price floor
or price ceiling scenario like the ones you did
in the “coaching” activity. Your classmates
will be answering the question, so don’t write
in the answers.
Create a key and tape it to the back of your
poster
Be as creative as possible but keep it school
appropriate