ECO 1104 Lecture Notes - Lecture 6: Demand Curve, Price Ceiling, Price Floor

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Gordon Lenjosek

Document Summary

Price ceilings: legal maximum on price at which a good can be sold: regulated price designed to protect interests of consumers, government dictates a maximum price for a commodity. Rent control laws: go(cid:448)(cid:859)t de(cid:272)ided that (cid:396)e(cid:374)ts a(cid:396)e(cid:374)(cid:859)t fai(cid:396) It intervenes in housing market to provide affordable housing: a price ceiling is ineffective unless it is below equilibrium price. If price ceiling is below equilibrium rent, a situation of excess qd for housing emerges. Price decrease, quantity supplied decreases: developers stop building. Shortage causes upward pressure on rents, & other perverse effects: outrageous parking & key charges, binding versus not binding price ceiling. In this equilibrium, quantity supplied and quantity demanded both equal 100 cones. It is consumers on demand side who are exploiting producers on supply side: government comes to rescues by imposing a price floor. Go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t legislates a (cid:862)fai(cid:396) p(cid:396)i(cid:272)e(cid:863) these goods (cid:449)hi(cid:272)h is a(cid:271)o(cid:448)e e(cid:395)uili(cid:271)(cid:396)iu(cid:373) le(cid:448)el: a price floor in ineffective unless it is above equilibrium price.