Economics 1021A/B Lecture Notes - Lecture 16: Price Ceiling, Opportunity Cost, Economic Surplus

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Deanna Walker

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. If the rent ceiling is set above the equilibrium rent, it has no effect. The market works as if there were no ceiling. Housing shortage: at the equilibrium price, the quantity demanded equals the quantity supplied. In a housing market, when the rent is at the equilibrium level, the quantity of housing supplied equals the quantity of housing demanded and there is neither a shortage nor a surplus of housing. But at a rent set below the equilibrium rent, the quantity of housing demanded exceeds the quantity of housing supplied= shortage. When there is a shortage, the quantity available is the quantity supplied, and somehow this quantity must be allocated among the frustrated demanders.