MarketsinAction

MarketsinAction - Chapter6 Markets to edit Click in Action...

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Click to edit Master subtitle style 11 Chapter 6 Markets in Action
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Course Outline {93B6C7DD-B656-4597-8DAF-0C35C7E5FCD7} Microeconomics troduction is Economics? Markets Work nd and supply tional Topics holds’ Choice Elasticity ncy and Equity t Actions in Markets s and Markets y and Demand references, and Choices onomic Problem put and Costs ct Competition onopoly istic Competition Oligopoly 22
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Lecture Outline I. Impact of rent ceiling II. Impact of minimum wage III. Impact of tax 1. Tax incidence 2. Tax and efficiency 3. Tax and fairness 33
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44 I. Housing Markets and Rent Ceilings n A price ceiling is a regulation that makes it illegal to charge a price higher than a specified level. n When a price ceiling is applied to a housing market it is called a rent ceiling . n If the rent ceiling is set above the equilibrium rent, it has no effect. The market works as if there were no ceiling. n But if the rent ceiling is set below the equilibrium rent, it has powerful effects .
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55 I. Housing Markets and Rent Ceilings n University of California at Berkeley: city government imposes strict rent controls. n University of Florida in Gainesville: there are no rent controls. n In which city would you expect incoming freshman students to have the least trouble renting an apartment? n Who ultimately gets the apartments? n If rent control laws fail to promote fairness, what about efficiency?
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q Because the legal price cannot eliminate the shortage, other mechanisms operate: < Search activity < Black markets q With a housing shortage, people are willing to pay up to $1,200 a month. I. Housing Markets and Rent Ceilings
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I. Housing Markets and Rent Ceilings n A rent ceiling leads to an inefficient use of resources. n The quantity of rental housing is less than the efficient quantity and there is a deadweight loss, illustrated in Figure 6.2. n A rent ceiling is also, usually, unfair. q
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This note was uploaded on 06/16/2011 for the course ECON 110 taught by Professor Tan during the Spring '07 term at HKUST.

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MarketsinAction - Chapter6 Markets to edit Click in Action...

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