MGEA02H3 Chapter Notes - Chapter 5: Price Controls, Economic Equilibrium, Deadweight Loss
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MGEA02H3 Full Course Notes
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Chapter 5: price controls and quotas: meddling with markets. Price controls: when a government intervenes to regulate prices. Price ceiling: maximum price where it is less than equilibrium price (pmax < p* and qd > qs: the black horizontal line represents the government-imposed price ceiling on rents of per month. This price ceiling reduces the quantity of apartments supplied to 1. 8 million, a, and increases the quantity demanded to 2. 2 million, b. This creates a persistent shortage of 400,000 units (400,000 people who want apartments at the legal rent of but cannot get them). Shortage: excess demand: price ceiling could cause inefficiency because there is a shortage (and may increase illegal activities/behaviour because people try to circumvent them) It reduced the quantity of apartments rented below the efficient level (inefficiency low quality) It typically leads to inefficient allocation of apartments among renters (inefficiency allocation to consumers)
