ECON 102 1st Edition Lecture 8 Outline of Last Lecture I Examples of Equilibrium and Shifts of the Supply Curve II Market Responses and Outcomes Outline of Current Lecture 1 Intervention in Efficient Markets a Price Controls i Price Ceiling 1 Inefficiencies of Rent Control 2 Why continue with Price Ceiling ii Price Floor 1 Effects of Price Floor b Quantity Controls Current Lecture Intervention in Efficient Markets I Price Controls Price Ceiling Maximum price dictated by the government Designed to help buyers housing market etc protect them Ceiling should be BELOW equilibrium price If the ceiling is above sellers can ignore the ceiling non binding If the ceiling is below sellers HAVE to follow its price binding Ex Rent Controls Sets a maximum rent that can be charged per unit of housing o Inefficiencies of Rent Control 1 Quantity Transacted is lowered Setting a price ceiling lower than the equilibrium creates a space between buyers and sellers Excess Demand Shortage 2 Inefficiency in allocation Usually to get an apartment you know the landlord or some other form of luck which puts you above the other buyers 3 Lower Quality Lower Standards No drive to refurbish no need to invest into creating a nicer product 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 4 Wasteful Resources Using resources to find different products but then not getting any form of that product 5 Black Market When a government outlaws a certain service or product sold illegally underground o Why continue with Price Ceiling 1 Invested interest groups lobbying 2 Lack of Knowledge about free market equilibriums 3 Bad Policy Making a Lack of understanding of Excess Demand Excess Supply Price Floor Minimum price dictated by the government Designed to help sellers wheat sales butter sales etc Government intervention is Agricultural markets to assist farmers Ex Minimum Wage Various states have different floors Floor should be ABOVE equilibrium price o Effects of Price Floor 1 Lower quantities 2 Waste of resources ii Perishable commodities destroy the extras give it away aid 3 Black Markets Strict enforcement of laws 4 Inefficient allocation to sellers 5 Inefficient high quality II Quantity Controls Quantity Ceiling Maximum quantity that is allowed to be sold as dictated by the government Designed to help sellers private farmers who need to sell goods Quantity Floor Quantity floors are not very common because the government can t force a seller to sell a minimum amount of product Illegal
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