ECON 1B03 Lecture Notes - Lecture 14: Price Ceiling, Economic Equilibrium

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Recall: in a free, unregulated market system, market forces establish equilibrium prices and exchange quantities. While equilibrium conditions may be efficient, it may be case that not everyone in society is satisfied and government may want to get involved. Now we"ll look at government policies and how they affect supply and demand. Government will freeze prices at a predetermined level that they feel will make members of society better off. These are usually enacted when policymakers believe market price is unfair to buyers or sellers. Is a legal max on price that can be charged for a good. Price ceiling is binding/effective if set below . A price ceiling isn"t binding/effective if set above . Government"s goal: to help poor by making housing more affordable. It sets max price (rent) for housing that is below equilibrium cost. At any one in time, number of apartments is fixed, so supply of housing is perfectly.

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