Microeconomics – Chapter 6
Price Ceiling (price cap) – 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
A Rent Ceiling set below the equilibrium rent creates:
1. A housing shortage
-If a rent ceiling is set below equilibrium rent, there will be a shortage.
2. Increased search activity
-Search Activity – time spent looking for someone with whom to do
-When a price is regulated and there is a shortage, search activity is
-The opportunity cost of housing is equal to rent plus time and other
resources spent searching for the restricted quantity available.
3. A black market
-an illegal market in which equilibrium price exceeds the price ceiling
When quantity of housing is low, but quantity demanded is high, some possible
ways to allocate housing are:
A Labour Market With a Minimum Wage
Firms decide how much labour to demand, and the lower the wage rate, the greater
is the quantity of labour demanded.
Households decide how much labour to supply, and the higher the wage rate, the
greater is the quantity demanded.
Price Floor – government regulation that makes it illegal to charge a price lower
than a specified level
Price floor below equilibrium has no effect
Price floor above equilibrium has effect.
Minimum Wage – when a price floor is applied to a labou