ECO101H1 Lecture : Price Ceilings and Price Floors - Lecture #6 Notes
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ECO101H1 Full Course Notes
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Document Summary
Price ceilings and price floors: government intervention in competitive markets is not helpful, unintended consequences occur when government intervenes. Observations: price ceiling, if beneath the market clearing price, creates shortages, principle of voluntary exchange: Q(p) = minimum [qdp, dsp] (if qd does not equal qs shortage: non-pricing rationing, those able to buy at the price ceiling could resell to other buyers at the black. Economic concerns with rent controls: creates shortage, incentive effects. Discourages construction (shortage worsens in long run) This is the problem of non-pricing rationing (in free market, dd and ss determine price and price determines who gets apartments) Ss: supply of unskilled workers: labour surplus (unemployment, teenagers: most affected, reduces opportunity for on-the-job training. Price ceilings and price floors: government intervention in competitive is not helpful, unintended consequences. Measured by higher price paid by buyers and lower price received by sellers. Price paid by buyer = price received by seller. Price paid by buyer = market price.
