ECON 101 Lecture Notes - Lecture 11: Price Ceiling, Price Floor

• School: UBC
• Department: Economics
• Course: ECON 101
• Professor: Marina Adshade

Document Summary

Government sometimes use price controls when they think the price produce by the free market, that is, the equilibrium, is inappropriate. For example, the rent in too high for poor people. Non-binding: price ceiling is above equilibrium (in which case it will not affect anything) Binding price ceiling cause shortage, as shown in the figure below. The graph showing how a binding price ceiling (presenting a price below the equilibrium) will cause a shortage. A number of factors affect the size of shortage. How far below the equilibrium the price ceiling is (further below = more shortage) How supply and demand change over time (longer time = more elasticity, the curves get flatter = more shortage) Consider the supply and demand function qd = 100-2p, and qs = 2p-20. A price ceiling of will be imposed. Thereby, a price ceiling of will not affect anything.