Chapter 4 Market Equilibrium and Elasticity
Chapter 4 Market Equilibrium and Elasticity
Price controls a Legal restrictions on how high or low a market price may go Price Ceiling limiting price (on consumer goods to protect consumers welfare) maximum price a seller can charge ■ Price f|oor: support price(on production factors, e. g labor minimum price a buyer is required to pay
Price Controls ◼ Legal restrictions on how high or low a market price may go ◼ Price Ceiling: – limiting price (on consumer goods to protect consumers welfare) – maximum price a seller can charge ◼ Price Floor: – support price (on production factors, e.g. labor) – minimum price a buyer is required to pay
Example: Price Ceiling Monthly rent (per apartment) Quantity of apartments (millions) 1400 Monthly rent Quantity Quantity 1300 (per apartment) demanded supplied 1.200 2.4 1.100 1.200 2.2 1.100 1.000 1.000 2.0 2.0 900 900 800 2.2 1.8 700 2.3 2.4 1.6 700 600 1.61.7181.92.02.12.22.32.4 Quantity of apartments(millions)
Example: Price Ceiling
The Effects of a Price Ceiling Month ly rent (per apartment) $1,400 S 200 1,000 Price A ceiling B 800 Housing shortage 600 of400.000 apartments caused D by price ceiling 1.6 1.8 2.0 2.2 2.4 Quantity of apartments(millions)
The Effects of a Price Ceiling
Example: Rent controls Figure 3.8, P70 Supply 2400 1,600 Excess demand 2 million apartments/month Controlled rent =800 Demand 2 Quantity(millions of apartments/day)
Figure 3.8,P.70 Example: Rent Controls