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Price Ceilings and Price Floors - Lecture #6 Notes

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James Pesando

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Price Ceilings and Price Floors 1 Government intervention in competitive markets is not helpful 2 Unintended consequences occur when government intervenesThe Impact of Price CeilingObservations 1 Price ceiling if beneath the market clearing price creates shortages 2 Principle of voluntary exchange DSQPminimum QP DP DS if Q does not equal Q shortage 3 Nonpricing rationing 4 Those able to buy at the price ceiling could resell to other buyers at the Black Market price of 12 Rent Ceiling Economic concerns with Rent controls 1 Creates shortage 2 Incentive effectsDiscourages construction shortage worsens in long runDiscourages maintenance
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