06ECO100OutlineInterventions

Gazzale university of toronto eco100 government

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Gazzale (University of Toronto) ECO100: Government Interventions 7 / 14
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Intervention 1: The Price Floor Ambiguous Effect on Producer Surplus (a) Assume elastic demand for labor (b) Assume inelastic demand for labor Gazzale (University of Toronto) ECO100: Government Interventions 8 / 14
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Intervention 1: The Price Floor Summary: Price Floor Assuming nobody purchases excess supply. Price floor: a price control that sets a legal minimum on the price at which a good can be traded A binding price floor sets P f > P * Compared with Q * Reduction in CS Ambiguous effect on PS (Why?) DWL DWL may be greater than depicted in graph Gazzale (University of Toronto) ECO100: Government Interventions 9 / 14
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Intervention 2: The Price Ceiling The Price Ceiling Price Ceiling a price control that sets a legal maximum ( P c ) on the price at which a good can be traded Binding Price Ceiling P c < P * Example Rent control in certain cities (e.g., New York); anti-gouging laws Gazzale (University of Toronto) ECO100: Government Interventions 10 / 14
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Intervention 2: The Price Ceiling The Binding Price Ceiling: Graphically Gazzale (University of Toronto) ECO100: Government Interventions 11 / 14
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