01:220:102 Chapter Notes - Chapter 5: Demand Curve, Price Ceiling, Deadweight Loss
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3 Oct 2016
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Price controls are legal restrictions on how high or low a market price may go. They can take two forms: a price ceiling, a maximum price sellers are allowed to charge for a good or service, or a price floor, a minimum price buyers are required to pay for a good or service. Price ceilings do not always cause shortages; if the price ceiling is set above the equilibrium price it won"t have an effect. It reduces the quantity of apartments rented below the efficient level. It typically leads to inefficient allocation of apartments among would-be renters. It leads to wasted time and effort as people search for apartments. It leads landlords to maintain apartments in inefficiently low quality or condition. Deadweight loss is the loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity.
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