When Prices Can't Move

Open the course by contrasting a normal market with one where the price is stuck.

• Equilibrium is where quantity demanded equals quantity supplied
• Prices normally adjust to bring the market back into balance
• Some prices are frozen by law or slow to change
• When price can't move, the market can stay out of balance

Let learners predict what happens when a price cap is set below equilibrium before seeing the explanation.

• Make a single prediction
• Price is fixed below equilibrium
• Expect shortage, surplus, or no change?

Define shortage and surplus clearly and show how both come from a price out of equilibrium.

• Shortage: quantity demanded exceeds quantity supplied
• Surplus: quantity supplied exceeds quantity demanded
• [Table] Compare shortage vs surplus: price, direction of imbalance, who is disappointed
• Both are signals that price is not at equilibrium

In an interactive supply-demand graph, learners set a price control and watch the shortage or surplus appear.

• Set a fixed price below or above equilibrium
• Watch the demand-supply gap change
• See why the gap persists while price stays fixed

Apply the shortage idea to rent-controlled apartments and address the belief that rent control simply helps tenants.

• A rent ceiling below equilibrium creates a housing shortage
• Some renters benefit, but many cannot find apartments
• Waiting lists and favoritism often take over
• The price signal is blocked, so new supply is discouraged

Check whether learners can classify policy examples and identify the resulting imbalance.

• Recognize a price ceiling or floor
• Identify the resulting shortage or surplus
• Use the price-relative-to-equilibrium rule

Apply the surplus idea to a minimum wage example and correct the idea that a surplus means no one wants the product.

• A price floor above equilibrium creates a surplus
• In labor markets, that surplus shows up as unemployment
• A surplus means quantity supplied exceeds quantity demanded at that wage
• It does not mean workers are unwanted in general

Explain common reasons prices stay fixed: laws, contracts, menu costs, and fairness norms.

• Legal restrictions: price controls by government
• Long-term contracts: prices fixed for a period
• Menu costs: changing prices is costly
• Fairness norms: firms hesitate to raise prices in a crisis

Show how markets cope when price cannot rise, and challenge the idea that shortages fix themselves quickly.

• Shortage is not temporary if the price cannot move
• Goods get rationed by waiting lines, lotteries, or favoritism
• Black markets may appear
• The market does not clear; the imbalance is managed

A final check on recognizing imbalances and explaining why they persist when prices cannot move.

• Identify shortage and surplus scenarios
• Explain why sticky prices matter
• Connect price controls to real-world outcomes

Wrap up by showing that a stuck price distorts information and causes persistent imbalance.

• Prices are signals that guide buyers and sellers
• A frozen price hides true scarcity
• Shortages and surpluses are the visible cost of a market out of balance
• Policymakers trade these costs against other goals