ECON 1050 Chapter Notes - Chapter 6: Price Ceiling, Economic Equilibrium, Price Floor
Document Summary
Explain how a rent ceiling creates a housing shortage. Because we spend most of our income on housing, it is often the case that rents can be a political issue renters are able to lobby the government for limits on rents. Price ceiling or price cap = government regulation that makes it illegal to charge a price higher than a specified level. Price ceiling applied to a housing market = rent ceiling. A rent ceiling that is set above the equilibrium rent no effect. A rent ceiling that is set below the equilibrium rent : housing shortage. Quantity of housing demanded exceeds the quantity of housing supplied: increased search activity. Time spent for someone with whom to do business is called search activity. When a price is regulated and there is a shortage, search activity increases. The opportunity cost of a good is also equalled to its search time spent finding the good.