ECON 1B03 Lecture Notes - Lecture 4: Price Ceiling, Price Floor, Shortage
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ECON 1B03 Full Course Notes
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Controls of prices price ceiling: a legal maximum on the price at which a good can be sold. Rent control price floor: a legal minimum on the price at which a good can be sold. How price ceilings affect market outcomes: not binding price ceiling: when the price ceiling is above the equilibrium; no effect on market outcome, binding constraint price ceiling: when the price ceiling is below the theoretical equilibrium. This leads to markets to perform rational mechanisms which may be discriminatory to certain buyers of a social group. Rent control; can be regulated by not having rent control while having subsidies for the poor people. How price floors affect market outcomes: not binding price floor: when the price floor is below the equilibrium; no effect on market outcome, binding constraint price floor: when the price floor is above the equilibrium. Minimum wage policy unemployed labour increases + unemployment insurance from the government.