Examples of Price Controls Price controls and natural gas shortages Minimum wage Production quotas Price supports Natural Gas In 1954 regulation of wellhead price of natural gas introduced In the 1970s price ceiling became binding In the 1980s price controls lifted The Natural Gas Market in 1975 p mcf 2 pmax 1 Shortage E S 18 D 20 25 q Tcf Welfare Effects of Price Controls p mcf 2 pmax 1 A B C 18 20 25 q Tcf Deadweight Loss and Gains From Price Controls in 1975 Consumers gain A and lose B A B 18 0 4 17 6 billion Producers lose A and C A C 18 1 19 billion Total lose B and C B C 1 4 billion Minimum Wage 1938 FDR introduces minimum wage with Fair Labor Standards Act Federal minimum wage 4 25 in 1996 5 15 in 1999 Covered about 10 million Americans in 1997 Minimum Wage w wmin w A Unemployment B C LD L LS L Minimum Wage Firms Consumers lose A and B Workers Producers gain A and lose C Total deadweight loss B C Production Quotas European Union keeps price of certain agricultural products milk relatively high by imposing production quotas to each member country Production Quotas p pq p A B C q max q q Production Quotas Farmers Producers gain A and lose C Consumers lose A and B Total deadweight loss B C Price Supports The government can keep the price of certain products relatively high by buying whatever amount is needed to keep the market price at that level US dairy products corn peanuts tobacco Price Supports p ptar p A B C Dg q1 q q2 q Price Supports Farmers Producers gain A B and C Consumers lose A and B Government spends Dg ptar Total deadweight loss Dg ptar C
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