Price Ceilings and Market Effects

Flashcards covering the key concepts from the lecture on price ceilings and their impact on markets.

What is a price ceiling?

A maximum price above which it is illegal for producers to sell to consumers.

What happens when a price ceiling is set above the equilibrium price?

Nothing; the market remains unchanged.

What occurs when a price ceiling is set below the equilibrium price?

A shortage occurs, as more people want to rent than are available.

What is consumer surplus?

The difference between what consumers are willing to pay and what they actually pay.

What happens to consumer and producer surplus when a price ceiling is implemented?

Consumer surplus may increase for some, while producer surplus decreases, leading to deadweight loss.

What is deadweight loss?

The reduction in surplus when the market is not in equilibrium due to price controls.

How does a price ceiling affect the quality of apartments?

It may reduce the quality of apartments as landlords have less incentive to maintain them.

What are search costs in relation to a price ceiling?

Additional time and effort required for consumers to find available apartments due to shortages.

What can occur due to a misallocation of apartments under a price ceiling?

Renters who value apartments more may not get them, while less valuing renters do.

How does the elasticity of supply change in the long run with price ceilings?

Long run supply becomes more elastic, leading to an even larger shortage.