ECON 1900 Study Guide - Price Ceiling, Price Floor, Economic Equilibrium
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Consider the market for rental housing in Your town. The demand and supply schedules for rental housing are given in the table.
Price ($ per month) |
Quantity Demanded (thousands of units) |
Quantity Supplied (thousands of units) |
1100 |
40 |
80 |
1000 |
50 |
77 |
900 |
60 |
73 |
800 |
70 |
70 |
700 |
80 |
67 |
600 |
90 |
65 |
500 |
100 |
60 |
- In a Free market for rental housing, what is the equilibrium price and quantity?
- Now suppose the government in Your town decides to impose a ceiling on the monthly rental price. What is the highest level at which such a ceiling could be set in order to have any effect on the marker? Explain your answer.
- Suppose the maximum rental price is set equal to $500 per month. Describe the effect on quantity demanded, supplied, and exchanged in the rental-housing market.
- Suppose a black market develops in the presence of the rent controls in part (c). What is the black market price that would exist if all of the quantity supplied were sold on the black market?
Market for bread
Price | Quantity demanded | Quantity supplied |
50 | 0 | 40 |
40 | 10 | 30 |
30 | 20 | 20 |
20 | 30 | 10 |
10 | 40 | 0 |
0 | 50 | 0 |
1. What is the equilibrium price and quantity in this market?
2. Suppose that the price of butter falls dramatically (due to lower butter production costs) so that the quantity demanded for bread increases by 40 units at any price. By how much does the price of bread change? By how much does quantity change?
3. Suppose that bread buyers are forced to wait in long lines in order to buy bread. If the value of their time can be estimated at $10/ hour, about how long would you expect people to be waiting in line to get a loaf of bread?
4. Suppose the government wishes to alleviate the problems caused by upward price pressure due to the price ceiling by taking all fresh bread off the market; all bread sold must be at least 1 day old. Would you expect this regulation to achieve the desired effect? Explain your answer?