ECON1010 Lecture Notes - Lecture 12: Economic Equilibrium, Price Controls, Deadweight Loss
All diagrams come from Patricia Ramirez de la Vina’s powerpoint “Demand, Supply, Government Policies”
Lecture 12 Notes - Demand, Supply, and Government Policies
Price Controls
● Price Ceiling
○ A legal maximum on the price of a good or service
■
■ Example: Rent Control
■ If price ceiling is above the equilibrium price, it will not be binding
● Binding: sustainable
■ Price Ceilings are binding only if they are below the equilibrium price
● Will create a shortage because demand is greater than supply
●
■ In NYC rent controls are harmful
● Renters want to stay in their apartment forever
● Apartment owners have no incentive to improve apartments
○ Long term, the market with a price ceiling will become more elastic and the
shortage will increase
○ Hard to get rid of this policy once it is implemented
○ Government solution to the shortage is rationing, which causes:
■ Long lines- first come first serve
■ Disriiatio aordig to sellers’ ias
● Inefficient and unfair- the goods to not go to the buyers who
value them most highly
● Price Floor
○ A legal minimum on the price of a good or service
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
All diagrams come from patricia ramirez de la vina"s powerpoint demand, supply, government policies . Lecture 12 notes - demand, supply, and government policies. A legal maximum on the price of a good or service. If price ceiling is above the equilibrium price, it will not be binding. Price ceilings are binding only if they are below the equilibrium price. Will create a shortage because demand is greater than supply. Renters want to stay in their apartment forever. Apartment owners have no incentive to improve apartments. Long term, the market with a price ceiling will become more elastic and the shortage will increase. Hard to get rid of this policy once it is implemented. Government solution to the shortage is rationing, which causes: Inefficient and unfair- the goods to not go to the buyers who value them most highly. A legal minimum on the price of a good or service.
