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ECON 1050 (117)
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Government Action in Markets

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ECON 1050

Lecture 9 ECON1050 Page 1 MICROECONOMICS Government Actions in Markets Focus disruption of market equilibrium by government intervention within the economy o rent ceilings lead to inefficiency and housing shortages o minimum wage o taxes subsidies and production limitsRENT CEILINGS IN THE HOUSING MARKET Introductionprice ceiling price cap regulation instating a maximum price on a productrent ceiling price cap applied to a housing market o rent ceiling set above the equilibrium rent has not effectHousing Shortagerent ceiling below equilibrium renthousing shortagelegal price cannot eliminate the shortageblack markets and search activitysupply of houses does not increase because suppliers do not want to supply more houses at the regulated priceshortage persists A Housing Market with a Rent Ceiling o supply curve essentially goes to the ceiling and becomes horizontal o OC regulated housingunregulated rentBecause the legal price cannot eliminate the shortage other mechanisms operateSearch activityBlack markets With a housing shortage people arewilling to pay up to 1200 a month2010 Pearson Education Canada A Search Activitysearch activity time spent looking for someone with whom to do businessOC of housingregulated rentOC of unregulated search activity o search activity is costlyprice regulation causes search activityB Black Marketblack market illegal market that operates alongside a legal market in which a price restriction has been imposed
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