ECO105Y1 Study Guide - Midterm Guide: Health Care In Canada, Unintended Consequences, Marginal Revenue

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Chapter 5: what gives when prices don"t? (government choices, When price is fixed below market-clearing, shortages develop (quantity demanded greater than quantity supplied) and consumers are frustrated. When price is fixed above market-clearing, surpluses develop (quantity supplied greater than quantity demanded) and businesses are frustrated. Fixed prices = no coordinated prices- the only way shortages or surpluses disappear is by quantities adjusting to whichever is less. With fixed prices, either the consumer or business is frustrated. Rent controls: example of price ceiling, maximum price set by government, making it illegal to charge higher price. Robin hood principal : to take from the rich, and give to the poor. Housing shortages, an unintended consequence of rent controls, give landlords the upper hand in dealings with tenants. A contributing factor to the shortage of housing may be that landlord"s benefits no longer exceed opportunity costs.

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