Economics 1021A/B Lecture Notes - Price Ceiling, Price Floor, Economic Equilibrium

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pearrat410

13 Nov 2012

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ECON 1021A/B Full Course Notes

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Document Summary

Price ceilings attempt to prevent the price from regulating the quantities demanded and supplied. When a price ceiling is applied to a housing market, it is called a rent ceiling: creates a housing shortage, increased search activity, a black market. Housing shortage: when rent is set below the equilibrium rent, the quantity of housing demanded exceeds the quantity supplied (a shortage) Black market: a rent ceiling encourages illegal trading in a black market, an illegal market in which the equilibrium price exceeds the price ceiling. Blocking rent adjustments does not eliminate scarcity, as it decreases the quantity available in the housing market the market must allocate a smaller quantity of housing: mechanisms of allocation: lottery. Allocates to those who are lucky, not the poorest first-come, first-served. Allocates to those who have the greatest foresight, no the poorest. Allocations based on the views and self-interest of the owner of the housing.

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.