Chapter 6 - Chapter 6 Supply, Demand, and Government...

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Chapter Supply, Demand, and Government Policies 6
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Controls on Prices 22
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Figure A market with a price ceiling 33 P r i c e o f I c e C r e a m C o n e s Quantity of Ice-Cream Cones 0 Deman d 1 0 0 (a) A price ceiling that is not binding In panel (a), the government imposes a price ceiling of $4. Because the price ceiling is above the equilibrium price of $3, the price ceiling has no effect, and the market can reach the equilibrium of supply and demand. In this equilibrium, quantity supplied and quantity demanded both equal 100 cones. In panel (b), the government imposes a price ceiling of $2. Because the price ceiling is below the equilibrium price of $3, the market price equals $2. At this price, 125 cones are demanded and only 75 are (b) A price ceiling that is binding 3 Supp ly $4 Price ceiling Equilibriu m price Equilibriu m quantity P r i c e o f I c e C r e a m C o n e s Quantity of Ice-Cream Cones 0 Deman d $3 Supp ly 2 Price ceiling Equilibriu m price 7 5 Quantity demande d Quantit y supplie d 1 2 5 Shortage
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Rent control in the short run 44
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Rent control in the short run 55
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Figure Rent control in the short run 66 R e nt al P ri c e o f A p ar t m e nt Quantity of Apartments 0 Dema nd (a) Rent Control in the Short Run (supply and demand are inelastic) Panel (a) shows the short-run effects of rent control: Because the supply and demand for apartments are relatively inelastic, the price ceiling imposed by a rent-control law causes only a small shortage of housing. Panel (b) shows the long-run effects of rent
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Chapter 6 - Chapter 6 Supply, Demand, and Government...

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