Economics 1021A/B Lecture Notes - Avoidance Speech, Deadweight Loss, Price Floor

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Jeannie Gillmore

Document Summary

Price ceiling/price cap gov regulation that makes it illegal to charge price higher than specified level. Price ceiling above equilibrium no effect. Price ceiling below equilibrium powerful effect. Price ceiling attempts to prevent price from regulating quan demanded and supplied. Rent ceiling price ceiling applied to housing market. In housing market, rent at equilibrium quan of housing supplied = quan of housing demanded. Rent below equilibrium shortage more demanded: increase search activity. Search for someone to do business with. Opportunity cost not only price, but value of search time. Opp cost = rent + time/other resources spent searching: a black market. Rent ceiling encourages black market illegal market in which equilibrium price excels price ceiling. Level of black market rent depends how tightly rent ceiling is enforced. Strict enforcement rent = max price renter is willing to pay. Rent ceiling below equilibrium rent = inefficient underproduction. Marginal social benefit exceeds marginal social cost.