price_controls - Government Interventions Price Controls...

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Government Interventions Price Controls
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Efficient Market Equilibrium Maximizes the sum of Consumer and Producer Surplus
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Distortions Actions that move the market away from the efficient allocation this week: government policies later weeks: market failures Distortions lead to inefficiency Deadweight burden is a measure of the loss
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Distortions and Deadweight Burden Lower quantity Gain not realized, DEADWEIGHT
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Distortions and Deadweight Burden Higher quantity Loss or Wasteful, DEADWEIGHT
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Price Ceilings Maximum legal price; e.g. rent control DEADWEIGHT LOSS Ceiling S h o r t a g e # of transactions $700 $500
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Price ceilings Maximum legal price Examples: Interest rates, inflation, exchange rates, gasoline, rents Leads to shortages Reduced market activity: quantity falls Deadweight burden Corruption Quality Discrimination by sellers
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Price Floors Minimum wage SURPLUS Floor # of skilled jobs $6 $7.50 Jobs Workers Deadweight Burden
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This note was uploaded on 10/17/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.

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price_controls - Government Interventions Price Controls...

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