When supply is inelastic and demand increases prices

Info icon This preview shows pages 4–7. Sign up to view the full content.

View Full Document Right Arrow Icon
When supply is inelastic and demand increases, prices increase causing consumers to lobby for price controls. Rent control in New York City is an example. Price Floors and Elasticity of Demand and Supply The surplus created by a price floor is larger if demand and supply are elastic. P F P E Q D Q S S D Q P P Q S D P F P E Q D Q S surplus surplus
Image of page 4

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

View Full Document Right Arrow Icon
5 The Long-Run/Short-Run Problem of Price Controls The problem of price controls worsen from the short run to the long run. In the long run, supply and demand tend to be much more elastic than in the short run. The Long-Run/Short-Run Problem of Price Controls In the short run there will be small effects from the price controls. There will be huge effects in the long run. The Long-Run/Short-Run Problem of Price Controls In the face of price controls, potential new competitors hate to enter the market thereby strangling supply. Vacancy rates drop as potential new renters scramble to find shrinking affordable housing. The Long-Run/Short-Run Problems of Price Controls In the l ong-run ong-run, supply and demand tend to be much more elastic more elastic than in the short run short run. In the short run short run, when demand and supply are more inelastic, the effects of price controls are small small. In the long run long run, with more elastic demand and supply, the shortages or surpluses are large larger.
Image of page 5
6 Long-Run and Short-Run Elasticities P 0 Q 0 P 1 Q 1 P 2 Q 2 Q 3 Short run supply D 0 Q P Long run supply D 1 Larger long-run elasticities result in smaller price increases when demand increases. Summary Consumer surplus is the net benefit a consumer gets from purchasing a good.
Image of page 6

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

View Full Document Right Arrow Icon
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern