Price Ceiling: Context Rich Problem
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Initial Publication Date: November 13, 2009
Summary
In this context rich problem, students are asked to analyze the effects of a price ceiling.
CollapseLearning Goals
price ceiling, excess demand/shortage
Context for Use
This context rich problem is to be used in principles of microeconomics and is an excellent way to introduce students to context rich problems. It is a fairly simple problem that helps students get used to creating a written response and graph with their answer. The problem would best work as a take-home assignment, but could be modified to use as an in-class example by not requiring a "one page" response.
Description and Teaching Materials
Your uncle is very upset because after a recent snow storm he was charged $300 by a private snow-removal company to clear his driveway. He wants to petition the local village government to pass a law to put a cap on how much firms can charge for clearing driveways. As a student of economics, your uncle asks your advice on the wording of his petition. Provide a one-page report, possibly with a graph, that your uncle can submit to the local village government.
Snow Removal Context Rich Problem (Microsoft Word 24kB Mar31 09)
Teaching Notes and Tips
This problem is best used right after the introduction of demand and supply. Students will assume that the equilibrium price is $300 and a "cap" would be an effective price ceiling. It is not a difficult problem, but a good way to introduce context rich problems to the student.
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Assessment
Students should recognize that a "price cap" might cause a shortage and the uncle might have difficulty getting his driveway plowed next time. Students should provide a graph of the concept as well.