CHAP 6

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Department
Economics
Course
Economics 1021A/B
Professor
Jeannie Gillmore
Semester
Fall

Description
Econ 1021Chap 6Government Actions in MarketsA Housing Market with a Rent Ceiling Price ceilingprice capgov regulation that makes it illegal to charge price higher than specified level Price ceiling above equilibriumno effectDoes not constrain market forces Price ceiling below equilibriumpowerful effect Price ceiling attempts to prevent price from regulating quan demanded and supplied Rent ceilingprice ceiling applied to housing marketBelow equilibrium creates1 Housing shortageIn housing market rent at equilibriumquan of housing suppliedquan of housing demanded Rent below equilibriumshortagemore demanded 2 Increase Search ActivitySearch for someone to do business with Opportunity costnot only price but value of search time Opp costrenttimeother resources spent searching 3 A Black MarketRent ceiling encourages black marketillegal market in which equilibrium price excels price ceiling Level of black market rent depends how tightly rent ceiling is enforced Strict enforcementrentmax price renter is willing to pay Inefficiency of a Rent CeilingRent ceiling below equilibrium rentinefficient underproduction Marginal social benefit exceeds marginal social cost Deadweight loss shrinks producer surplus and consumer surplus Are Rent Ceilings FairFair rules viewanything that blocks voluntary exchange is unfairrent ceilings are unfair Fair result viewfair outcomebenefits less well offfair to allocate scare housing to pooresti Lotteryallocates to those who are lucky not to poor ii First come first serveallocates to those who have greatest foresight and get names on list firstnot to poorest iii Discriminationallocates scare housing based on views of self interest ofA Labour Market with a Min Wage
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