251Ch6lecture1

# 251Ch6lecture1 - d 1000 – S Q s = P 400 P = Q s 400 –...

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9/19/2011 1 1 Chapter 6: Government Actions in Markets Lecture 1: Price ceilings Price Controls 1. Price ceiling – Maximum legal price (the highest price at which a good can legally be sold – Ex: caps, rent controls, salary caps, utilities 2. Price floor – Minimum legal price (the lowest price at which a good can legally be sold) – Ex: minimum wage, agricultural price supports Rent Control • Market for apartments – D: Q d = 2000 - 2 P ( P = -1/2 Q

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Unformatted text preview: d + 1000) – S: Q s = P - 400 ( P = Q s + 400) – At equilibrium, Q d = Q s – P* = 800, Q* = 400 Rent Control Graph Allocating the shortage 1. Lines (waiting) 2. Circumvent the rule • “Black market price” 3. Ration coupons 4. Violence Deadweight loss of price ceiling 9/19/2011 2 Inefficiency of rent control Black Market price D=MB 600 400 200 400 800 equilibrium S=MC 1000 900 800 DWL DWL = ½ bh = ½(200)(300) = \$30,000...
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251Ch6lecture1 - d 1000 – S Q s = P 400 P = Q s 400 –...

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