ECON101 Lecture : Chapter 6 - Government Actions in Markets.docx

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Corey Van De Waal

Document Summary

Price ceiling (or price cap) is a regulation that makes charging a price her than a specified level is illegal. Rent ceiling is a price ceiling applied to a house market. If set above the equilibrium rent, market works as if there were no ceiling. If set below the equilibrium rent, it influences the market. On the image to the left, the equilibrium rent is illegal (as it is above the set rent ceiling). At the rent ceiling, the quantity of house demanded > quantity of houses supplied. Therefore there is excess of demand, or a shortage of housing. At the equilibrium rent, the legal price does not eliminate the housing shortage to the demand, therefore it causes: According to the image, because the ceiling rent places the legal price at , landlords are providing only 60,000 units of housing. With the shortage, someone is willing to pay a maximum of ,200.