ch6 - Markets in Action Housing Markets and Rent Ceilings A...

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Chapter 6 Markets in Action Housing Markets and Rent Ceilings A price ceiling is a regulation that makes it illegal to charge a price higher than a specified level. When a price ceiling is applied to housing markets, it is called a rent ceiling . For a price ceiling to be effective it must be set at a level below the equilibrium price. In the figure at the left, a rent ceiling of $16 a unit creates a housing shortage of 56,000 units. When a rent ceiling creates a housing shortage, search activity and black markets occur. The time spent looking for someone with whom to do business is called search activity . A black market is an illegal market in which the price exceeds the legally imposed price ceiling. Rent ceilings are inefficient. In the figure at the right, a rent ceiling of $16 a month decreases the quantity of housing supplied to 44,000 units. Marginal benefit is greater than marginal cost. Producer surplus shrinks, consumer surplus shrinks, and a deadweight loss arises. 1
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2 The Labour Market and the Minimum Wage In the short run, there is a given number of people who have a given skill, training, and experience. To get workers to work more hours, they must be offered a higher wage rate. The long-run supply of low-skilled labour is the relationship between the quantity of labour supplied and the wage rate after enough time has passed for people to enter or leave the low-skilled labour market. The long-run supply of labour is perfectly elastic. The top figure shows a market for low-skilled labour. If a labour-saving invention decreases the demand for low-skilled labour, the demand for labour decreases, the wage rate falls, and the quantity of low-skilled labour employed decreases. The bottom figure shows the long-run adjustment. People who are now earning $4 an hour decide to go back to school or take jobs that pay less but offer on- the-job training. The short-run supply curve shifts
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This note was uploaded on 06/30/2009 for the course ECON 1020 taught by Professor Parkin during the Spring '09 term at UWO.

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ch6 - Markets in Action Housing Markets and Rent Ceilings A...

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