ECON1131 Chapter Notes - Chapter 5: Deadweight Loss, Price Controls, Economic Equilibrium
Document Summary
Even at price equilibrium buyers and sellers aren"t necessarily happy: strong political demand to intervene. Want to make policies fair: price controls: legal restrictions on how high/low a market price may go. Certain unpleasant side effects when this happens. Assumption: markets are efficient before price controls put in: when inefficient price controls improve markets. Typically imposed during times of crisis: rent control came from wwii. Impose price ceiling that is below equilibrium price: landlords have less incentive to offer apartments. Supply decreases: more people want to rent apartment at lower price. Price ceiling causes shortages: don"t always cause shortages if price ceiling above equilibrium price there won"t be any affects. Creates inefficiency in four ways: inefficiently low quality. Decreased supply decreased amount of apartment rented. Deadweight loss: loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium. Loss to society lose surplus that is again to no one.
