Determining the Effects of Price Ceilings and Price Floors

This video lesson examines the effect of two types of government interventions in the markets for particular goods. Price ceilings and price controls consist of maximum or minimum prices imposed by government, intended to help either the consumers or the producers of particular goods. Like many forms of government intervention, price controls have unintended consequences that usually make them inefficient, and reduce total welfare in affected markets.

In this lesson we will look at two real world examples of price controls: the market for butter in Europe, in which European governments enforce a price floor intended to help butter producers, and the market for petrol in China, in which the Chinese government enforces a price ceilings meant to help consumers. Once you have watched the videos, follow the links below two blog posts about these two examples, and respond to the discussion questions at the end of the posts.

Once you’ve watched the video, complete numbers 9 and onward from the following practice activity: Government Intervention Practice – Per Unit Subsidiesand Price Controls

Price controls on the blog:

  1. The problem with price controls in Europe’s agricultural markets
  2. Price controls in the Chinese Petrol market – or why you may have to wait in line to fill your gas tank!

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