ECON 102 Lecture Notes - Lecture 11: Price Controls, Market Distortion

20 views1 pages

jadeworm431

17 Dec 2015

School

University of Illinois

Department

Economics

Course

ECON 102

Professor

Isaac Dilianni--- Universityof Illinois

For unlimited access to Class Notes, a Class+ subscription is required.

apricotsalmon423 and 1 other unlocked

ECON 102 Full Course Notes

Verified Note

13 documents

Document Summary

Econ 102 - lecture 11 - price control (continued) Effective price control: a price control law that keeps the price above or below the market-clearing price. Maximum price control law (price ceiling): a law prohibiting people from trading at a price above a legal maximum. Minimum price control law (price floor): a law that prohibiting people from trading at a price below a legal minimum. Rent control law: a maximum price control on rental housing. Affected by slums, housing shortage, lawbreaking, the old widow effect, market distortion. Rationing laws: restrict people"s consumption of certain goods. Minimum wage law: a minimum price control on workers" wages. Affected by reduced hours, reduced benefits or training, elimination of entire job categories, and workers leaving the labor force (striking) Wages increase as productivity increases, and vice versa.

Related Questions

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below.

Rent	Demand	Supply
2,500.00	10,000	15,000
2,000.00	12,500	12,500
1,500.00	15,000	10,000
1,000.00	17,500	7,500
500.00	20,000	5,000

1. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied?

2. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1,500, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

3. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2,500 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

4. Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing to get the market equilibrium rental price to fall to $1500 per month? To $1000 per month? To $500 per month?

salmonwombat608

suppose that the demand and supply schedules for rental apartments in the city of gotham

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below.

Rent	Demand	Supply
2,500.00	10000	15000
2,000.00	12500	12500
1,500.00	15000	10000
1,000.00	17500	7500
500.00	20000	5000

1.What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied?

2.If the local government can enforce a rent-control law that sets the maximum monthly rent at $1500, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

3.Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2500 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

4.Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of the housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to $1500 per month? To $1000 per month? To $500 per month?

ultramarinewoodchuck739

Question 1

During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

		$30
		$35
		$40
		Indeterminant with the given information.

2 points

Question 2

Which of the following is an example of a price floor?

		A sale price with a limit on the quantity you can purchase.
		Rent-controlled apartments
		Predatory pricing designed to put a competitor out of business.
		The minimum wage

2 points

Question 3

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		The Affordable Care Act
		Minimum wage laws
		Rent control laws
		Communism

2 points

Question 4

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 5

What is a price ceiling?

		A minimum price consumers are willing to pay.
		A minimum price allowed by law.
		A maximum price allowed by law.
		A maximum price consumers are willing to pay.

2 points

Question 6

Why are the long lines generated by a shortage worse than paying a higher price in money?

		It is not better or worse. Paying in time and paying in money are essentially the same in a market economy.
		Paying with time reduces the value of money, and prevents valuable trades from occurring.
		Waiting in line is a waste of a valuable resource: time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources.
		Paying with time gives those who do not work an advantage over those who do.

2 points

Question 7

Which of the following is a possible effect of a price floor?

		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		Decreases in product quality.
		A shortage of the good.

ECON 102 Lecture Notes - Lecture 11: Price Controls, Market Distortion

ECON 102 Full Course Notes

Document Summary

Get access

Related Documents

ECON 102 Study Guide - Midterm Guide: Production Function, Marginal Cost, Diminishing Returns

ECON 102 Study Guide - Lemonade, Economic Surplus, Cream Cheese

ECON 102 Study Guide - Final Guide: Spontaneous Order, Scantron Corporation, Revamp

Related Questions