eco9.14 - Controls on Prices Are usually enacted when...

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Controls on Prices •Are usually enacted when policy makers believe the market price is unfair to buyers and sellers •Result in government-created ceilings and floors •”Equilibrium allotment”- everything goes back to equilibrium in a free market How Price Ceilings Affect Market Outcomes Price Ceiling is a legal maximum on the price at which a good can be sold •Two outcomes are possible when the government imposes a price ceiling: •The price ceiling is not binding if set above the equilibrium price •The price ceiling is binding if set below the equilibrium price, leading to a shortage •A binding price ceiling creates shortages because Q D >Q S •Example: Gasoline shortage of 1970s Case Study: Rent Control in the Short Run and Long Run •Rent controls are ceiling on the rents that landlords may charge their tenants •The goal of rent control policy is to help the poor by making housing more affordable •People are willing to pay •Creates a black market ªNo incentive-shortage means someone will pay
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This note was uploaded on 04/20/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas at Austin.

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eco9.14 - Controls on Prices Are usually enacted when...

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