ECN E102 Lecture Notes - Lecture 10: Labour Economics, Price Ceiling, Economic Equilibrium
Document Summary
This is a regulated price designed to protect the interests of consumers. The government dictates a maximum price for a commodity the equilibrium price of the market isn"t fair. Intervenes in the housing market to provide affordable housing. If the price ceiling lies below the equilibrium rent, a situation of excess quantity demanded for housing emerges. Shortage causes upward pressure on rents, and other perverse effects. Even though the price ceiling was motivated by a desire to help buyers, not all. Supply and demand is inelastic in the short-run, so the shortage isn"t as significant buyer benefit from the policy as during the long-term, where the supply and demand are more elastic. When the government imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration the scarce goods among the large number of potential buyers. The rationing mechanisms that develop under price ceilings are rarely desirable.
