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Legislators often have been dissatisfied with the outcomes of free markets. The invisible hand is not good enough for them, so they mandate prices that are lower or higher than the equilibrium price. A price ceiling is a legal maximum price that may becharged for a good or service. If a price ceiling is below the equilibrium price, it will cause shortages and illegal, or underground markets to develop. A price floor is a legal minimum price that may be charged for a good or service. If a price floor is above the equilibrium price, it will cause surpluses. 

Students will prepare a presentation of price ceilings and floors, discuss how changing prices are incentives that determine what to produce, how to produce, and for whom to produce. Sometimes the students are mechanistic and merely identify shortages and surpluses on a graph. They should instead understand why price ceilings cause shortages and price floors cause surpluses. People react to incentives in predictable ways.

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