ECON 1000 Lecture Notes - Lecture 6: Price Ceiling, Deadweight Loss, Economic Equilibrium
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If rent ceiling is set above equilibrium rent it has no effect. The market works as if there were no ceiling. If rent ceiling is set below the equilibrium rent it has powerful effects. i. e. effects of a rent ceiling that is set under the equilibrium rent. A rent ceiling is set at per month, so equilibrium rent is in the illegal region. At the rent ceiling the quantity of housing demanded exceeds the qs. This causes a shortage within the housing market. Because legal price cannot eliminate the shortage, other mechanisms operate: increased search activity, a black market. * with the shortage, someone is willing to pay up to ,200 for the scarce resource now. Time spent looking for someone with whom to do business is search activity. When price is regulated, plus the opportunity cost of the search activity.