Economics 1010 Lecture Notes - Production Quota, Price Ceiling, Deadweight Loss
17 Oct 2012
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Document Summary
A price ceiling or price cap is a regulation that makes it illegal to charge a price higher than a specified level. When a price ceiling is applied to a housing market, it is called a rent ceiling. If the rent ceiling is set above the equilibrium rent, it has no effect. The market works if there were no ceiling. But if the rent ceiling is set below the equilibrium rent, it has powerful effects. A black market: with the shortage, someone is willing to pay up to ,200/mo. The time spent looking for someone with whom to do business it is called search activity. When a price is regulated and there is a shortage, search activity increases. Search activity is costly and the opportunity cost of housing equals its rent (regulated) plus the opportunity cost of the search activity (unregulated)
