Economics 1021A/B Chapter Notes - Chapter 6: Deadweight Loss, Price Ceiling, Tax Incidence

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Jeannie Gillmore

Document Summary

Rent ceiling: price cap specific to a housing market. A rent ceiling set below equilibrium rent creates: housing shortage: When rent cap is below equilibrium, quantity demanded exceeds quantity supplied and there is a shortage. Since homes are necessities, smaller quantity must be allocated among frustrated demanders. Increased search activity: increased time spent looking for someone with whom to do business. Would-be-renters search the newspaper, internet, and brokers for possible supplier breakout. It uses valuable resources (including money and time) that could have been valuable otherwise. Increased search activity can by itself raise the cost of housing (not rent: black market: an illegal market in which the equilibrium price exceeds the price ceiling. The level of black market rises with the harshness of the rent ceiling enforcement. With loose enforcement, black market rent is similar to unregulated rent. With harsh enforcement, black market rent equals the maximum price that a renter is willing to pay.