ECON 203 1nd Edition Lecture 8Outline of Last Lecture I. Consumer/Producer Surplusa. Consumer Surplusb. Producer Surplusc. Gains from TradeOutline of Current LectureI. price ceilingII. price floorCurrent LectureI. Price CeilingEx. Rent control- sets a maximum value that rent can beblue= consumer surplus (CS)red= producer surplus (PS)yellow= dead weight loss (Welfare loss)recall: CS= TV-TE PS= TR-TC GFT= CS+PSThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Price ceiling sets a maximum price of a good below the equilibrium price Units above Qsrc have been left vacant or repurposed( office buildings etc.~ not worth it to rent them as apartmentsWith rent control, Qdrl (people willing to pay/wanting apt.) is greater than Qsrc( apts. available)the building owner now gets to decide which applications are accepted~ can use a credit check to ensure rent is paid~ can make renters pay up front to avoid late payments~ this situation may allow for discriminationThe building owner also wanted to make money back that rent control now prevents him from collecting~ could lower cost of building maintenance- take longer to fix renter problems~ could create a key fee/charge rent for a parking spotDead Weight Loss(DWL)- the gains from trade that would have been generated at equilibrium, but no longer exist due to controlled marketex 2.) tuition restrictions-say a law passes to prevent VCU from charging students above a certain tuition rateif VCU decides to keep number of students at Q*, there is still a major discrepancy between supply and demand; demand is significantly higher than supplyhigher demand means application submissions will be higher, but lower supply means more applications will be rejected. Availability is the most important aspect of a transactionII. Price floorA price floor is a minimum price set by lawEx.) minimum wages for unskilled labor~It is estimated that at $5.50/hr, there would be 400million labor hours available (approx. 10million jobs)~when $7.25 minimum wage is enforced ~ Qdmw falls to 200 milllion labor hours(approx.. 7million jobs) ~Qsmw raises to 480million labor hours(approx. 12million jobs)~as unit prices of labor becomes more expensive, technology will be utilized in order to make workers more productive~when changes occur, the smaller number will always be the real number
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