Price Controls Flashcards
why are controls on prices usually enacted
when policy makers believe the marketprice is unfair to buyers or sellers and resources aren’t being allocated efficiently
what is a price ceiling
the legal maximum on the price at which a good can be sold
example of price ceilings
rent controls
what is a price floor
a legal minimum at which a good can be sold
example of price floors
minimum wage, alcohol sale
when is a price ceiling non binding
when set above the equilibrium
when is a price ceiling binding
when set below the equilibrium, leading to a shortage
a binding price ceiling causes
excess demand
what are rent controls
ceilings placed on the rents that landlords may charge their tenants
what is the goal of rent controls
to make housing more affordable
why do binding price ceilings cause shortages
quantity demanded is greater than quantity supplied
what results from price ceilings on rent (unintended)
long queues, lottery systems, landlords decrease supply as it isn’t profitable, black markets emerge
solution to rent cap
address shortage on housing
when is a price floor non binding
when it is set below the equilibrium
when is a price floor binding
if set above the equilibrium
