lecture_9 - Controls on Prices Price ceilings - a legal...

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ECON 1001 LECTURE 5 1 Controls on Prices Price ceilings - a legal maximum at which a good can be sold Price floor - a legal minimum at which a good can be sold Prediction: a binding ceiling on a competitive market causes a shortage. - Sellers must then ration the good in another manner. Prediction: a binding floor price on a competitive market causes a surplus
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ECON 1001 LECTURE 5 2 q P S D A non-binding pricing floor P* q* P FL
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ECON 1001 LECTURE 5 3 q P S D Pricing floor - excess supply P g P* q d q* q s
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ECON 1001 LECTURE 5 4 q P S D A non-binding pricing ceiling P c P* q*
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ECON 1001 LECTURE 5 5 q P S D Pricing ceiling - excess demand P g P* q s q* q d
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ECON 1001 LECTURE 5 6 Examples: Wool floor price - the excess supply purchased by govt and stockpiled Minimum wages - excess supply ‘unemployment’ Rental price controls - no incentive to improve or maintain the housing stock especially in the long run
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ECON 1001 LECTURE 5 7 Wool minimum price q P S D P WP P* q d q* q s Excess supply - q s - q d purchased by govt for abq s q d a b
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ECON 1001 LECTURE 5 8 q of labour Wage S D A labour market with a binding minimum wage W g W* q dg q* q sg unemployment
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ECON 1001 LECTURE 5 9 Rent Rent D S R g Shortage R g D S Shortage Rent controls - in the short and long run
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ECON 1001 LECTURE 5 10 q q D S1 S1 S2 D P P Pc P1 P1 P2 qd qs A price ceiling can be binding at times and not others shortage
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ECON 1001 LECTURE 5 11 Overall If there is a binding price ceiling a shortage results Another form of rationing is needed
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lecture_9 - Controls on Prices Price ceilings - a legal...

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