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ECON 201 1-31-2011 - Black Markets • Reduced Costs to...

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15:21 ECON 201 1-31-2011, Chapter 5 Price Controls  (These are examples of Market Intervention) Price Ceiling:  A restriction on the maximum price allowed. Exmaple:  Rent Control, Wage Controls during WWII When price ceiling is below the equilibrium, the market is not binding. Price Floor:  A restriction on the minimum price allowed. Example:  Minimum Wage Deadweight Loss:  the loss of total surplus due to a market intervention. Effects: Wasted Rescources…Extra 400000 Appartments Inefficiently Low Quality
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Unformatted text preview: Black Markets • Reduced Costs to Discrimination Why Price Ceilings/Rent Controls? • Lots of negative effects • Persistent Shortage • Inefficiencies • Black Market/Illegal Activities/Wasted Activities Why Price Floors? • Lots of negative effects • Persistent Surplus • Inefficiencies • Black Market/Illegal Activities/Waste • Explanations… • People don’t understand economics • Market is not competitive • Benefits the sellers, who may have political power • May wish to protect some sellers 15:21 15:21...
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