ECON 103 Lecture Notes - Lecture 6: Deadweight Loss, Avoidance Speech, Marginal Cost
19 Oct 2017
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Price ceiling/price cap: regulation that makes it illegal to charge higher than a speci c level. When applied to housing market = rent ceiling. A rent ceiling is set below equilibrium creates: @ 800, quantity demanded exceeds quantity supplies = shortage of housing. With the shortage, someone is willing to pay up to a month (the extra will be paid through extra fees + under the table) $ spent on a bike to look for place, $ spent staying at a friend"s while looking for a place. Inefficiency of rent ceiling under equilibrium = inef cient underproduction of housing services. Marginal social bene t from housing services > marginal social cost + dead weight loss. People are still buying @ rent ceiling cost. However real cost is at b/c of search cost of increased search activity. Max. search cost is pink rectangle (transfer of surpluses so its not deadweight)
