VCU ECON 203 - price ceiling and floor (3 pages)

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price ceiling and floor

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price ceiling and floor


a brief overview of price ceilings and price floors

Lecture number:
Lecture Note
Virginia Commonwealth University
Econ 203 - Introduction to Economics

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ECON 203 1nd Edition Lecture 8 Outline of Last Lecture I Consumer Producer Surplus a Consumer Surplus b Producer Surplus c Gains from Trade Outline of Current Lecture I II price ceiling price floor Current Lecture I Price Ceiling Ex Rent control sets a maximum value that rent can be blue consumer surplus CS red producer surplus PS yellow dead weight loss Welfare loss recall CS TV TE PS TR TC GFT CS PS These 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 apartments With 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 discrimination The 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 spot Dead Weight Loss DWL the gains from trade that would have been generated at equilibrium but no longer exist due to controlled market ex 2 tuition restrictions say a law passes to prevent VCU from charging students above a certain tuition rate if VCU decides to keep number of students at Q there is still a major discrepancy between supply and demand demand is significantly higher than supply higher demand means application submissions will be higher but lower supply means more applications will be rejected Availability is the most important aspect of a transaction II Price floor A price floor is a minimum price set by law Ex minimum wages for unskilled labor It is estimated that at 5 50 hr there would be

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