ECON 1050 Chapter Notes - Chapter 6: Avoidance Speech, Social Cost, Economic Surplus
Document Summary
Government regulation that makes it illegal to chage a price higher than a specified level is called a price ceiling or price cap if price ceiling is above equilibrium there is no effect, does not constrain market force. Price ceiling below equilibrium price attempts to prevent price from regulating the quantities demanded and supplied. Price ceiling applied to housing market is called a rent ceiing- when set below equilibrium it creates: housing shortage, black market increased search activity. At a rent set below equilibrium, quantity of housing demanded exceeds quantity of housing supplied (shortage) Increased search activity search activity: time spent looking for someone to do business with spend time in search activity almost every time a purchase is made increases when a price is regulated and there is a shortage. An illegal market where the equilibrium price exceeds the price ceiling.