ECON 1050 Chapter Notes - Chapter 6: Shortage, Excess Supply, Price Ceiling
Document Summary
A price ceiling is a government regulation that makes it illegal to charge a price above a specified level. The effect of a price ceiling depends on whether it is above or below equilibrium. A price ceiling above equilibrium has no effect as it does(cid:374)"t co(cid:374)strai(cid:374) market forces. A price below equilibrium has major effects as market forces are now in conflict. A rent ceiling is a price ceiling applied to a housing market that, if set below equilibrium, creates a housing shortage, increases search activity, and creates a black market. At equilibrium, the quantity of housing demanded equals the quantity of housing supplied. Rent set below equilibrium rent means more housing is demanded than is being supplied (i. e. a shortage of housing). Search activity is the time spent looking for someone whom to do business with (ex. Time spent researching a product before buying it). When price is regulated and there is a shortage, search activity increases.