ECON 1050 Lecture Notes - Economic Surplus

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Disruption of market equilibrium by government intervention within the economy: rent ceilings lead to inefficiency and housing shortages, minimum wage taxes, subsidies, and production limits. Price ceiling (price cap): regulation instating a maximum price on a product rent ceiling: price cap applied to a housing market: rent ceiling set above the equilibrium rent has not effect. Because the legal price cannot eliminate the shortage, other mechanisms operate: With a housing shortage, people are willing to pay up to. 2010 pearson education canada: search activity. Oc of housing = regulated rent + oc of unregulated search activity search activity: time spent looking for someone with whom to do business: search activity is costly. Price regulation causes search activity: black market. Black market: illegal market that operates alongside a legal market in which a price restriction has been imposed. A housing market with a rent ceiling rent ceiling under equilibrium underproduction.

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