ECO 1104 Lecture Notes - Lecture 8: Price Ceiling, Price Floor, Labour Economics

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Rebekah Owusu

Document Summary

Anal(cid:455)zes (cid:448)a(cid:396)ious t(cid:455)pes of go(cid:448)(cid:859)t polic(cid:455) usi(cid:374)g o(cid:374)l(cid:455) tools of supply & demand. We begin by considering policies that directly control prices. Price ceilings: legal maximum on price @ which a good can be sold. Regulated price designed to protect interests of consumers. Go(cid:448)(cid:859)t dictates a (cid:373)a(cid:454)i(cid:373)u(cid:373) p(cid:396)ice fo(cid:396) a co(cid:373)(cid:373)odit(cid:455: ex. It intervenes in housing market to provide affordable housing. A price ceiling is ineffective unless it is below equilibrium price. If price ceiling below equilibrium rent, a situation of excess qd for housing emerges. Price decreases, quantity supplied decreases: developers stop building landlords cease to maintain units. Price decreases, quantity demanded increases: shortage causes upward pressure on rents, & other perverse effects, outrageous parking & key charges. Price floors: legal minimum on price @ which a good can be sold. Again, market generates a price which offends ou(cid:396) se(cid:374)se of (cid:862)social justice(cid:863) This time, price is so low that produce(cid:396)s ca(cid:374)(cid:859)t (cid:373)ake a dece(cid:374)t li(cid:448)i(cid:374)g.