ECO101H1 Lecture Notes - Lecture 8: Working Poor, Price Ceiling, Market Clearing
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ECO101H1 Full Course Notes
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Document Summary
Governments sometimes impose price ceilings (rent controls) or price floors (minimum wages) When governments interfere with the functioning of markets, there are often unintended consequences. Insight: dd and ss should be drawn and the impact assessed. Ex: if rent ceiling is beneath the market clearing price, there is a shortage. *note: if rent ceiling is above the market clearing price, it has no effect on the market. Economic impact of rent controls: creates shortages (d>s, discourages construction and maintenance of rental housing. Answer: politics, there are more tenants (voters) than there are landlords. Raising the minimum wage would not reduce jobs and unemployment. Advantage: raises income of the working poor. Disadvantage: reduces number of jobs for unskilled workers, reduces opportunity for on-the-job training, primarily affects teenagers, who are just entering the job market. The incidence of a sales tax is measured by the higher price paid by buyers and the lower price received by sellers.
