ACC 100 Lecture Notes - Lecture 3: Economic Equilibrium, Deadweight Loss, Price Floor
7 Dec 2017
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Document Summary
When government intervenes to regulate prices, we say that it imposes price controls. Controls are either in the form of a price ceiling" or a price floor". Price ceiling - the maximum price to sell at. Price floor - the lowest price to sell at. A price ceiling below the equilibrium price point will create a shortage. A price ceiling above the equilibrium price will not have any effect. Price controls creates inefficiency and give rise to illegal behavior as people try to circumvent them. Deadweight loss - the lost surplus associated with the transactions that no longer occur due to market intervention. Deadweight loss is a loss to society. Rent control leads to too few apartments available and misallocation of the apartments available. Some people require apartments much more urgently than others but may not be able to find an apartment.
