ECON 101 2Midtermreview

If the price rises by the full amount of the tax

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Unformatted text preview: rent ceiling is set below the equilibrium rent, it has powerful effects. Housing Shortage Figure 6.1 shows the effects of a rent ceiling that is set below the equilibrium rent. The equilibrium rent is $1,000 a month. A rent ceiling is set at $800 a month. So the equilibrium rent is in the illegal region. At the rent ceiling, the quantity of housing demanded exceeds the quantity supplied. There is a shortage of housing. Because the legal price cannot eliminate the shortage, other mechanisms operate: • • • • • Search activity Black markets With a housing shortage, people are willing to pay up to $1,200 a month. Search Activity Ø། The time spent looking for someone with whom to do business is called search activity. Ø། When...
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