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Chapter 6

Microeconomics - Chapter 6.docx

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Department
Economics
Course
ECON 1050
Professor
Eveline Adomait
Semester
Fall

Description
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 Business -When a price is regulated and there is a shortage, search activity is increased. -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 lottery -First-come, first-served -Discrimination 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
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