01:220:102 Chapter Notes - Chapter 5: Price Ceiling, Deadweight Loss, Economic Surplus

• School: Rutgers University
• Department: Economic
• Course: 01:220:102
• Professor: J A C K Skydel

Document Summary

Chapter 5 price controls and quotas: meddling with markets. There is often a strong political demand for governments to intervene in markets. When a government intervenes to regulate prices, we say that it imposes price controls. These controls typically take the form either of an upper limit, a price ceiling, or a lower limit, a price floor. When markets are inefficient, price controls don"t necessarily cause problems and can potentially move the market closer to efficiency. In practice, however, price controls are often imposed on efficient markets. Price ceilings are typically imposed during crisis--wars, harvest failures, natural disasters-- because these events often lead to sudden price increases that hurt many people but produce big gains for a lucky few. At the enforced rental rate of , landlords have less incentive to offer apartments, so they won"t be willing to supply as many as they would at the equilibrium rate of ,000.