2-6-19 - ● Social Goals vs Market Efficiency ●...

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Social Goals vs. Market Efficiency Distorting Market Outcomes A common way of achieving social goals involves setting prices at “socially desirable” levels. If we do this, however, prices are not allowed to adjust to their equilibrium. Price Ceilings Many governments use price controls to make things more affordable such as housing or other necessities. A price ceiling is a maximum legal price that can be charged for a product. These ceilings freeze the landlords revenue and hurt their profits. Price Floors This is the lowest legal price that can be paid for a good or service. We see this occur with minimum wage, or the lowest legal wage that can be paid to workers. The demand curve however illustrates that only 10 million people would be hired leaving a surplus of 4 million workers. Many people argue that the minimum wage leaves more people unemployed.
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