chapter 7

Effect of a rent ceiling

The effect depends on whether it is imposed at a level above or below the equilibrium. If you refer to the textbook on page 170 and look at figure 7.1, you will see that if rent ceiling was set above $550 a month, nothing would change because people already pay that amount monthly. Now if the rent was below the equilibrium it has a very powerful effect on the market. The reason is that the rent ceiling attempts to prevent the rent from rising high enough to regulate the quantities demanded and supplied. The market and the law are in a bit of a problem with this, so at this point they both must yield or give ways to their arguments that could resolve them.

Price support

this market is isolated from the rest of the world influences.farmers produce a greater quantity than domestic users are willing to buy, something must be done with the surplus. The price support is inefficient because it creates a deadweight loss.

Black Market

underground economy is a market in which goods or services are traded illegally

Search activity

when a price ceiling creates a shortage of housing, search activity increases. the opportunity cost of a good is equal to its price plus the value of the search time spent finding the good.

Rent ceiling

A regulation that makes it illegal to charge more than a specified rent for housing.

Minimum wage

is a government regulation that makes hiring labor services for less than a specified wage illegal

Price floor

is a government regulation that places a lower limit on the price at which a particular good,service, or factor of production may be traded

Price ceiling (Price cap)

government regulation that places an upper limit on the price at which a particular good, service, or factor of production may be traded.