Economics Discussion - Price Ceiling
In no way am I asking anyone to do my homework for me, it's just that I find this particular question highly subjective and I would like to hear what other people think
[url=http://oi47.tinypic.com/24y4b6h.jpg]Pretend the market for rental housing in Toronto looks like this[/url]
Now suppose the government in Toronto decides to impose a ceiling on the monthly rental price. What is the highest level at which such a celling could be set, in order to have any effect on the market? What if it were set to $500?
At $700, the quantity demanded and the quantity supplied are equal (the equilibrium, if plotted). So would that mean that any price equal or lower to $700 would have an effect?
February 13, 2013
5 Comments • Newest first
[quote=Peperz276]I'm in high school, and Reserve Requirement is like Chapter 10 in our Textbook. I just looked back in my notes, and Price Ceiling/Floor is Chapter 6... So in other words, you won't have to learn that for a bit.[/quote]
Congratulations your highschool econ class moves faster than my econ 100 class
thanks everyone the gears are turning (I have to apply this to some other questions)
[quote=Peperz276]Yeah, that was my bad. I looked back at my notes and did a facedesk.[/quote]
Yap.
Anyway, while I'm here: laissez-faire or piss off. t(^__^)t
The highest level to have an effect = $700 (slightly lower than $700)
at $500 demand > supply
It's cheaper than equilibrium.
So people want to rent 80 units, but landlords will only supply 40 units.
The demand curve is essentially the marginal social benefit while the supply curve is the marginal social cost.
In your case, $500 (where MSB>MSC) would incur a deadweight loss. It's the area below the demand curve up to the set price and you calculate the triangular area relative to the graph's units.
Anyway, I'm an Accounting student but I took some Economics... I think I got that right.
@Peperz276: Eh, from how his question is composed, I don't think elements from an average cost curve would factor in. It looks like they're just trying to teach the very rudiments.
@TheOneCygnus: Yup, he's right about the consequences of deadweight losses.
A price CEILING always causes a shortage because governments try to lower the price for housing rentals, so there will be more demand at a lower price, and tenants will be more reluctant to offer out renting. Price floor is on TOP of the equilibrium price while price ceiling is usually the BOTTOM. If the price ceiling is higher than the equilibrium price, then it will have no affect because they're already selling lower than the price ceiling. Similar to price floor, if the price floor is set lower than equilibrium price, it will have no affect