Economics 1021A/B Chapter Notes -Price Ceiling, Deadweight Loss, Economic Equilibrium

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

A government regulation that makes it illegal to charge a price higher than a specified level is called a price ceiling or price cap. A price ceiling set above the equilibrium price has no effect. A price ceiling set below the equilibrium, price has powerful effects on a market. When a price ceiling is applied to a housing market it is called a rent ceiling. A rent ceiling is set below the equilibrium rent creates. At a rent set below equilibrium rent, the quantity of housing demanded exceeds the quantity of housing supplied there is a shortage. When there is a shortage, the quantity available is the quantity supplied and, somehow, this quantity must be allocated among the frustrated demanders. The time spent looking for someone with whom to do business is called search activity. In some markets, such as the housing market, people spend a lot of time checking the alternatives available before making a choice.