MCS 1000 Chapter Notes - Chapter 6: Price Ceiling, Deadweight Loss, Price Floor

• School: University of Guelph
• Department: Marketing and Consumer Studies
• Course: MCS 1000
• Professor: Sergio Meza

Document Summary

A government regulation that makes it illegal to charge a price higher than a specified level is called a price ceiling or price cap. A price ceiling set above the equilibrium price has no effect (the reason is that the price ceiling does not constrain the market forces) A price ceiling set below the equilibrium price has powerful effects on a market (the reason is that the price ceiling attempts to prevent the price from regulating the quantities demanded and supplied) When a price ceiling is applied to a housing market, it is called a rent ceiling and a rent ceiling below equilibrium creates: a housing shortage, a black market. When the rent is at the equilibrium level, the quantity of housing supplied equals the quantity of housing demanded and there neither a shortage or a surplus of housing. But when rent is set below equilibrium, the quantity of housing demanded exceeds the quantity of housing supplied (aka a shortage)