ECON 1050 Chapter Notes - Chapter 6: Demand Curve, Social Cost, Unemployment Benefits
14 Apr 2017
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This attempts to prevent the price from regulating the quantities demanded and supplied. A price ceiling applied to housing market, is a rent ceiling set below the equilibrium rent: causes a housing shortage, increased search activity, a black market. A black market: the black market is an illegal market in which the equilibrium price exceeds the price ceiling. Inefficiency of a rent ceiling: rent ceiling set below the equilibrium rent results in an inefficient underproduction of housing services. Producer surplus shrinks to the blue, and consumer surplus shrinks to the green, the red is a potential loss from housing search. Are rent ceilings fair: anything that bocks voluntary exchange is unfair, so rent ceilings are unfair, but according to the fair result view, a fair outcome is one that benefits the less well off. So the fairest outcome is the one that allocates scarce housing to the poorest.
