Price Ceilings and Price Floors - Assignment #7

"Government-set prices undermine the rationing function of competitive prices." Explain carefully in terms of both price ceilings and price floors.

A price ceiling means that the government may hold prices at a level that is below the equilibrium price. Since the market equilibrium is where the quantity demanded and the quantity supplied are equal, any price that is below would find an excess quantity demanded over that supplied. A shortage would arise and the market would fail to ration. This is what it means.

Explain the economic effects of a price floor at $7. Be sure to reference quantity, shortage or surplus, and what has changed from the previous question.

At a price floor of $7, the quantity demanded is equal to the quantity supplied. This means that it's at the equilibrium, so there is no shortage or surplus.

Explain the economic effects of a price floor at $8. Be sure to reference quantity, shortage or surplus, etc.

At a price floor of $8, the quantity demanded is 4000 and the quantity supplied is 5500. Therefore, there is a surplus of 1500 units.

Explain the economic effects of a price floor at $9. Be sure to reference quantity, shortage or surplus, and what has changed from the previous question.

At a price floor of $9, the quantity demanded is 3500 and the quantity supplied is 6500. Therefore, there is a surplus of 3000 units. What changed from the previous question was the surplus. At $9, the surplus is twice as much as the surplus at $8.

Use economic analysis to explain why tenants in New York City who are covered by rent-controlled laws do not want to move.

Tenants in New York City who are covered by rent-controlled laws don't want to move because they prefer not to lose the laws that were put in place for the residents. The price ceilings stops the prices from going up excessively high and the law stops a big increment in price. Also, a negative would be that consumers can't live in those places due to occupancy in the building. Although the safety of the inhabitants is why the law is in place.