ECON 1050 Chapter Notes - Chapter 6: Price Ceiling, Price Floor, Economic Equilibrium

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Price ceiling - government regulation that makes it illegal to charge a price higher than a specified level. Rent ceiling - when a price ceiling is applied to a housing market. *rent ceiling set above equilibrium price has no effect. The price ceiling does not constrain market forces. Rent ceiling set below the equilibrium price creates: Quantity demand for housing exceed quantity supplied for housing. Due to shortage of housing and regulated price. Strict enforcement -> black market rent is equal to maximum price customer is willing to pay. Loose enforcement -> black market rent is closer to that of unregulated rent. Rent ceiling below equilibrium creates underproduction of housing. Loss borne by consumers is the dwl and cost of increased search activity. Bottom line: in principle and practice, rent ceilings are inefficient and unfair. Price floor - government regulation that makes it illegal to charge a price lower than a specified level specified level.

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