U2 M8 Price Floors + Black Market

Price Floor

A minimum price set on a good, which can lead to a surplus if above the market clearing level.

Purpose of Price Floors

To protect income levels in certain industries, such as farming, and to guarantee a minimum wage for employees.

Minimum Wage Floor

A specific type of price floor that sets the lowest legal wage that can be paid to workers.

Impact of Raising Minimum Wage

Leads to decreased demand from companies and reduced supply of labor, potentially resulting in unemployment.

Employer Expenses

Increased minimum wages raise costs for employers, which may lead them to increase prices on goods and lose customers.

Rent Control

A price ceiling imposed by local governments that limits how much landlords can charge tenants.

Consequence of Rent Control

Can create a disincentive for tenants to move out, leading to a shortage of available apartments.

Farming Price Supports

Government interventions that set minimum prices for agricultural products to stabilize farmers' income.

Black Market Pricing

In a black market, supply is constant, and suppliers aim to maximize prices based on demand.

Determining Maximum Black Market Price

Involves analyzing the equilibrium condition and identifying where the vertical supply line intersects the demand curve.