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Principles of Economics- Mankiw (5th) 118

Principles of Economics- Mankiw (5th) 118 - 122 PA R T T W...

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122 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK price ceiling, producers were willing to sell Q S , and consumers were willing to buy Q D . Thus, the shift in supply caused a severe shortage at the regulated price. Eventually, the laws regulating the price of gasoline were repealed. Law- makers came to understand that they were partly responsible for the many hours Americans lost waiting in line to buy gasoline. Today, when the price of crude oil changes, the price of gasoline can adjust to bring supply and demand into equilibrium. CASE STUDY RENT CONTROL IN THE SHORT RUN AND LONG RUN One common example of a price ceiling is rent control. In some cities, the local government places a ceiling on rents that landlords may charge their tenants. The goal of this policy is to help the poor by making housing more affordable. Economists often criticize rent control, arguing that it is a highly inefficient way to help the poor raise their standard of living. One economist called rent control “the best way to destroy a city, other than bombing.”
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