ECON 1050 Lecture Notes - Lecture 6: Price Ceiling, Price Floor, Economic Equilibrium

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tanmoose627

3 Dec 2015

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Price ceiling or price gap: a government regulation that makes it illegal in charge a price higher than a specified level. Price ceiling set above the equilibrium price has no effect. Price ceiling set below the equilibrium price has powerful effects on a market. Price attempts to prevent the price from regulating the quantities demanded and supplied. Rent ceiling: price ceiling is applied to a housing market. Rent ceiling set below the equilibrium rent creates: A housing shortage rent ceiling is set below the equilibrium rent. Increased search activity the time spent looking for someone with whom to do business, when price is regulated and there is a shortage, search activity increases. A black market a rent ceiling also encourages illegal trading in a black market, an illegal market in which the equilibrium price exceeds the price ceiling. Possible mechanisms when the rent is not permitted to allocate.

Related Questions

Consider the market for rental housing in Your town. The demand and supply schedules for rental housing are given in the table.

Price ($ per month)	Quantity Demanded (thousands of units)	Quantity Supplied (thousands of units)
1100	40	80
1000	50	77
900	60	73
800	70	70
700	80	67
600	90	65
500	100	60

In a Free market for rental housing, what is the equilibrium price and quantity?
Now suppose the government in Your town decides to impose a ceiling on the monthly rental price. What is the highest level at which such a ceiling could be set in order to have any effect on the marker? Explain your answer.
Suppose the maximum rental price is set equal to $500 per month. Describe the effect on quantity demanded, supplied, and exchanged in the rental-housing market.
Suppose a black market develops in the presence of the rent controls in part (c). What is the black market price that would exist if all of the quantity supplied were sold on the black market?

harlequincrow283

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

mauveyellowjacket715

Question 1

During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

		$30
		$35
		$40
		Indeterminant with the given information.

2 points

Question 2

Which of the following is an example of a price floor?

		A sale price with a limit on the quantity you can purchase.
		Rent-controlled apartments
		Predatory pricing designed to put a competitor out of business.
		The minimum wage

2 points

Question 3

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		The Affordable Care Act
		Minimum wage laws
		Rent control laws
		Communism

2 points

Question 4

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 5

What is a price ceiling?

		A minimum price consumers are willing to pay.
		A minimum price allowed by law.
		A maximum price allowed by law.
		A maximum price consumers are willing to pay.

2 points

Question 6

Why are the long lines generated by a shortage worse than paying a higher price in money?

		It is not better or worse. Paying in time and paying in money are essentially the same in a market economy.
		Paying with time reduces the value of money, and prevents valuable trades from occurring.
		Waiting in line is a waste of a valuable resource: time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources.
		Paying with time gives those who do not work an advantage over those who do.

2 points

Question 7

Which of the following is a possible effect of a price floor?

		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		Decreases in product quality.
		A shortage of the good.

ECON 1050 Lecture Notes - Lecture 6: Price Ceiling, Price Floor, Economic Equilibrium

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