ECON 1B03 Lecture Notes - Lecture 6: Economic Equilibrium, Rent Regulation, Deadweight Loss

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Equilibrium conditions are efficient but since they do not satisfy everyone in society the government may get involved. Price control: government freezes prices at a predetermined level that they feel makes members of society better off, usually enacted (made) when policymakers believe the market price is unfair to buyers and sellers. Legal maximum price that can be charged for a good: binding (effective) if set below the equilibrium price, leading to a shortage, not binding (ineffective) if set above the equilibrium price, ex. Given qd = 1700 2p and qs = 2p 900 eq: 1700 2p = 2p 900 p* = 650 and q* = 400. Qd = 1700 2(500) = 700 and qs = 2(500) 900 = 100. So, we have a shortage of 600 (qd qs) Legal minimum price that can be charged for a good: binding if set above equilibrium price, leading to a surplus, not binding if set below the equilibrium price, ex.