Ch06-Lecture+Notes - Rent Control A Housing Market with a...

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Rent Control: A Housing Market with a Price Ceiling Rent ceiling, if set below the equilibrium price, constrains the function of market. It creates shortages. At the available quantity of housing, marginal social benefit > marginal social cost It may be motivated by “good intentions”. But it always has unintended consequences Increased “search activities” Rise of black market Creative ways to make a deal effectively at, or above, the equilibrium price It creates inefficiencies Deadweight loss Even if you managed to get a housing at a rent lower than your willingness to pay, you may have spent more time and effort searching, or, end up paying “key money” etc. Landlord would have less incentive to maintain their property. It often gives rise to unfair rule to allocate housing, and unfair outcomes of who gets housing. [ ] Minimum Wage: A Labor Market with Price Floor Minimum wage, if set above the equilibrium price, constrains the function of market. It creates surplus (unemployment). At the available quantity of labor, marginal social benefit > marginal social cost It may be motivated by “good intentions”. But it always has
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