ECON 1B03 Lecture Notes - Lecture 6: Price Floor, Economic Equilibrium, Demand Curve

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

When the government freezes prices: at a level that they feel will make society better off, feels the equilibrium price is not fair for everyone. A legal maximum price that can be changed for goods: binding (effective) if set below equilibrium price leads to shortage, not binding (not effective) if set above or equal to equilibrium price. Governments goal: help the poor by making housing more affordable: sets a maximum rent that is below equilibrium price. Number of apartments is fixed: there are only so many number of apartments available, perfectly inelastic supply (vertical. Creates a shortage of apartments: quantity supplied stays the same, quantity demanded increases. Landlords may get out of the rental business: supply becomes elastic (flatter curve) Low rents encourage people to look for housing: demand becomes elastic (flatter curve) Creates a larger shortage of apartments: creates a dwl.