ECON 1000 Lecture Notes - Price Ceiling, Deadweight Loss, Price Floor
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ECON 1000 Full Course Notes
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Most of our income is spent on housing. When rents are high renters lobby the government for limits on rents. Government regulation that makes it illegal to charge a price higher than specified level is a price ceiling or a price cap. Effects of a price ceiling on a market depend crucially on whether the ceiling is imposed at a level that is above or below equilibrium price. If above then there is no effect because it does not constrain market forces. Prevents the price from regulating quantities demanded and supplied, force of law and market are in conflict. At equilibrium quantity demanded is equal to quantity supplied. In housing, quantity of housing supplied equals quantity of housing demanded. With a rent set below equilibrium, demand exceeds supply and there is a shortage of housing. With a shortage the quantity available is quantity supplied and must be allocated among frustrated demanders.