ECON 1B03 Chapter Notes - Chapter 6: Demand Curve, Deadweight Loss, Price Ceiling

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Free unregulated market system, market forces set equilibrium prices and exchange quantities. If not everyone is satisfied with equilibrium conditions, government may get involved. Price control: government freezes price for greater good of society, enacted when equilibrium price seems unfair for buyers/sellers. Price ceiling legal max on price that can be shortage: if set below equilibrium price shortage will occur (price ceiling is, ex. Rent control lower price of rent to make housing more: if set above equilibrium price (price ceiling is not binding) When rent controls are in place, non-price rationing of housing affordable binding) occurs. Low quality goods: can lead to , binding if set above equilibrium price surplus, can lead to . Price floor legal min price charged in market: can result in illegal activity (black market, not binding if set below equilibrium price. Sales taxes on consumers: raises revenue for public products, tax incidence distribution of tax burden.