Lecture 3 - Study Chapters 4, 5, 6 (part I) 1. Controls on...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Study Chapters 4, 5, 6 (part I) 1. Controls on Prices Price Ceiling; a legal maximum on the price at which a good can be sold (i.e. rent control). Price Floor; a legal minimum on the price at which a good can be sold (i.e. minimum wage). Outcomes possible when the government imposes a price ceiling: The price ceiling is not binding if set above the equilibrium. The price ceiling is binding if set below the equilibrium price, leading to a shortage. Graphically: A Binding price ceiling creates: Shortages because the quantity demanded is greater than the quantity supplied. (i.e. gas shortage of the 1970s) Nonprice rationing (i.e. Long lines, discrimination by sellers). Rent Control; ceiling placed on the rents that landlords may charge their tenants. The goal of the policy is to help the poor by making housing more affordable. However, the rent control is likely to cause a shortage of housing in the long run. Price Floors are not binding if set below the equilibrium price, but it
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Lecture 3 - Study Chapters 4, 5, 6 (part I) 1. Controls on...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online