Economics 1021A/B Lecture Notes - Lecture 6: Price Ceiling, Economic Equilibrium, Price Floor

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Nicholas Kahnert

Document Summary

Explain how rent ceilings create housing shortages and inefficiency. Explain how minimum wage laws create unemployment and inefficiency. Explain how markets for illegal goods work (maybe) Price ceiling/price cap: regulation that makes it illegal to charge a price higher than a specified level. When price ceiling is applied to a housing market it is called a rent ceiling. A rent ceiling above equilibrium rent has no effect (market works normally). But a rent ceiling set below the equilibrium rent creates: Search activity: time spent looking for someone with whom to do business. People give up their time for something else to try to find housing. Search activity is costly opportunity cost of housing equals its rent (regulated) plus the cost of search activity (unregulated) The opportunity cost of housing exceeds the unregulated rent. Black market: illegal market that operates alongside a legal market in which a price ceiling or other restriction has been imposed.