ECON 1050 Chapter Notes - Chapter 6: Price Ceiling, Deadweight Loss, Economic Equilibrium
27 Oct 2018
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Price cap/ceiling: charging a higher price than the specified level. Set above the equilibrium price: no effect as it doesn"t constraint market forces. Below equilibrium: has powerful effects on market; attempts to prevent price from regulating the quantities demanded and supplied. Rent ceiling: when a price ceiling is applied to the housing market. Increased search activity: a housing shortage, a black market, shrinking consumer and producer surplus. Housing shortage: when rent is at equilibrium level: quantity of housing supply = quantity of housing demand, but if rent is set below equilibrium then demand exceeds quantity supplied leading to a shortage. Increases search activity ends up making full cost of housing higher. Black market: illegal market where the equilibrium price exceeds the price ceiling. Inefficiency with a rent ceiling: set below equilibrium inefficient and underproduction, marginal social benefit of housing exceeds marginal social cost and a deadweight loss shrinks producer and consumer surplus.
