Sometimes the government imposes artificial wage and price controls such as minimum wage laws (price floors) or rent controls (price ceilings).  Prices are not permitted by law to fall below a price floor (minimum wage),  nor to rise above a price ceiling (rent control).  In this activity, we will discover the possible effects artificial wage and price controls could have on the economy.

Subject: Economics
Topic: The Price System
Grade Level:  12
Student Lesson: Price Floors and Ceilings (URL:)

12.2(6)  Describe the effects of price controls on buyers and sellers. 

12.2(4)  Explain how prices reflect the relative scarcity of goods and services and perform the allocative function in a market economy.

12.2(2)  Discuss the effects of change in supply and/or demand on the relative scarcity,  price and quantity of particular products.

a) The minimum wage is an example of a price floor, below which no employer may legally pay wages.  Although raising the livable wage for workers, it reduces the demand for unskilled workers and tends to create a surplus of workers. 

b)  Rent controls are an example of a price ceiling; no landlord may charge rent  above that which is set by government.  Although rent controls provide attractive rents to tenants, they are quickly snapped up and tend to result in shortages  of affordable housing.

In this lesson, students will diagram the relationship between supply and demand under the conditions of minimum wage laws (price floors), and rent controls (price ceilings).  In each context, the student will see the relationship that exists after government imposes each wage and price control environment; a surplus of available workers under wage controls, and a shortage of affordable housing after rent controls.

Student Activities

Introductory Activity

Students will log onto this activity which will give a brief review and pre-test of the laws of supply and demand.  They will then discover the possible consequences of government imposed wage and price controls and be directed to find some possible results under two different scenarios; mimimum wage laws and rent controls.

Students will be linked to a preliminary factsheet and directed to an interactive powerpoint and/or spreadshheet  presentation  which will enable them to construct graphs from the supplied data which will illustrate the interplay between prices, supply and demand and the resultant surplus (in the case of minimum wage) or shortages (in the case of rent controls).   Students will then be asked to complete the activity by plotting  two graphs; 

1) the supply  of available jobs at different wages and the demand of available workers seeking jobs at various wages, and, 
2) the supply of available affordable houses at different monthly rents, and the demand, the number of tenants seeking affordable housing at various monthly rents.

Students will print out the results of the interacive activity and the two graphs.  They will answer the relevent questions and complete the survey, and compose a brief description of their results as to how supply and demand is affected by wage and price controls.  They will also summarize and take a position either in favor of or against either rent control or minimum wage laws, then provide the instructor a printed copy of their output, or, alternatively, they may also choose to e-mail  their results file to the instructor.

Assessment

Prior to completing the learning activity, students will be evaluated according to a pre-test   Following the activity, a post-test will be administered to assess achievement of the lesson objectives.

Summary of pre-test and post-test results.

Evaluation Results
After implementing your lesson (sometime between January & March), insert a chart of your pre-test, post-test, and culminating assessment data. 

Web Resources & Supplementary Materials

Introductory Activity
List and link the web resources for this activity here. Also link supplementary materials such as PDF files and /or document files.

Enabling Activity
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Culminating Activity
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Last Revised: 09/02/2000