Economics 1021A/B Lecture Notes - Lecture 6: Price Ceiling, Opportunity Cost, Deadweight Loss

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4 Nov 2016

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ECON 1021A/B Full Course Notes

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A price ceiling or price cap is a regulation that makes it illegal to charge a price higher than a specified level. When a price ceiling is applied to a housing market it is called a rent ceiling. Effects of a price ceiling on a market dependent on whether it is above or below equilibrium price. Price ceiling attempts to prevent the price from regulating the quantity demanded and supplied. If the rent ceiling is set above the equilibrium rent, it has no effect. The market works as if there were no ceiling. But a rent ceiling set below the equilibrium rent creates: When rent is at equilibrium level, the quantity housing supplied=quantity of housing demanded, therefore there is no shortage nor a surplus. Rent set below equilibrium rent, quantity of housing demand exceeds the quantity of housing supplied (shortage) Shortage on housing means the quantity available is the quantity supplied.

Related Questions

Consider the market for rental housing in Your town. The demand and supply schedules for rental housing are given in the table.

Price ($ per month)	Quantity Demanded (thousands of units)	Quantity Supplied (thousands of units)
1100	40	80
1000	50	77
900	60	73
800	70	70
700	80	67
600	90	65
500	100	60

In a Free market for rental housing, what is the equilibrium price and quantity?
Now suppose the government in Your town decides to impose a ceiling on the monthly rental price. What is the highest level at which such a ceiling could be set in order to have any effect on the marker? Explain your answer.
Suppose the maximum rental price is set equal to $500 per month. Describe the effect on quantity demanded, supplied, and exchanged in the rental-housing market.
Suppose a black market develops in the presence of the rent controls in part (c). What is the black market price that would exist if all of the quantity supplied were sold on the black market?

harlequincrow283

1 . Effects of rent control

Rent controls force landlords to price apartments below the equilibrium price level. An immediate effect is a shortage (excess demand) of apartments, because the quantity of apartments demanded is greater than the quantity supplied at the regulated price.

When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? Check all that apply.

The future supply of rental housing units increases.

The quantity of available rental housing units falls.

The quality of rental housing units falls.

Nonprice methods of rationing emerge.

blackcoyote423

When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? Check all that apply.