Economics 1021A/B Lecture Notes - Price Ceiling, Price Floor, Economic Equilibrium
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ECON 1021A/B Full Course Notes
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A government regulation that makes it illegal to charge a price higher than a specified level is called a price ceiling or price cap. The effects of a price cap depends on whether the price is imposed above or below the equilibrium price: This is because the price ceiling does not constrain the market forces (law and market forces are not in conflict) This is because the price ceiling attempts to prevent the price from regulating the quantities demanded and supplied. When a price ceiling is applied to a housing market, it is called a rent ceiling. A rent ceiling set below the equilibrium rent creates: a housing shortage. Quantity of housing demanded exceeds the quantity of housing supplied-there is a shortage of housing. Quantity available=quantity supplied, and somehow this quantity must be allocated. : increased search activity. When a price is regulated and there is a shortage, search activity increases (in newspapers, housing ads, death notices)