ECON-E 201 Lecture Notes - Lecture 14: Price Ceiling, Price Floor, Price Controls
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ECON-E 201 Full Course Notes
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Econ-e201 lecture 14 notes- markets: price ceilings/floors, taxes, and subsidies. Price rationing role of free markets: functions of rental and labor prices: Rental- allocate and ration use of new and existing housing. Non-price rationing: government price controls: price controls- government-mandated minimum or maximum prices, price ceiling- legal maximum price, price floor- legal minimum price. Illegal arrangements between renters/landlords at rents above p2 the rent ceiling and p1. Generally above what rent would be in unregulated market (equilibrium rent price: search activity- time spent looking for someone to do business with. Opportunity cost of housing = regulated rent + opportunity cost of search activity (unregulated) Because quantity of housing is less than that in an unregulated market, opportunity cost of housing exceeds unregulated rent. Causes decrease in quantity of rental housing, so quantity < efficient quantity; deadweight loss present. People use resources in search activity- decreases producer surplus, increases consumer surplus: fairness of rent ceilings.
