Chapter 6 - Chapter 6 Government Actions in Markets Price...

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Chapter 6: Government Actions in Markets Price ceiling/cap gov’t regulation that makes it illegal to charge a price higher than a specified level Set above the equilibrium price—no effect Below equilibrium price—powerful (tries to prevent price from regulating q. demanded and q. supplied) Rent ceiling price ceiling applied to housing market Set below equilibrium price, it creates: 1. A Housing Shortage @ equilibrium level, neither shortage nor surplus occurs below the price, demand exceeds supply, and it causes a shortage 2. Increased Search Activity Search activity time spent looking for someone to do business with o Increases when there is a shortage and price regulation o Opportunity cost of housing is rent (regulated price) and other resources spent searching for the restricted quantity available 3. Black Market Black market illegal market in which the equilibrium price exceeds price ceiling a rent ceiling set below equilibrium rent creates inefficient underproduction of housing services o MSB > MSC o
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