ECO100Y5 Lecture Notes - Lecture 6: Price Floor, Mira-Bhayandar Municipal Corporation, Economic Surplus

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ECO100Y5 Full Course Notes
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There are two types of price controls. Producer surplus = area below the price but above supply curve. Consumer surplus = area above price but below the demand curve. Economic surplus is maximized when marginal benefit = marginal cost (mb=mc) Dead weight loss difference in surplus between efficient outcome and the actual outcome. Price ceiling- maximum legal price in a market (i. e. rent control) Price ceiling > p* than not binding. Price ceiling < p* than it is binding. Dead weight loss (dwl) = economic surplus in price ceiling (espc) The market for bread can be represented by the following equations for supply and demand. What happens when price ceiling is at p= . Nothing happens because the price ceiling is higher than equilibrium so therefore the price ceiling is not binding. Producers lose out because consumer surplus has shrunk. Consumers are worse because there is less available in the.

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