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## Econ 102 Week 7 Notes

by: Michelle Pope

11

1

6

# Econ 102 Week 7 Notes Econ 102

Michelle Pope
UIUC
GPA 3.5

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These cover the last set of notes before the exam. Part 2 of Price Controls
COURSE
Microeconomic Principles
PROF.
Dr. Issac DiIanni
TYPE
Class Notes
PAGES
6
WORDS
CONCEPTS
Econ, 102, price, Controls
KARMA
25 ?

## Popular in Microeconomics

This 6 page Class Notes was uploaded by Michelle Pope on Saturday October 8, 2016. The Class Notes belongs to Econ 102 at University of Illinois at Urbana-Champaign taught by Dr. Issac DiIanni in Fall 2016. Since its upload, it has received 11 views. For similar materials see Microeconomic Principles in Microeconomics at University of Illinois at Urbana-Champaign.

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Date Created: 10/08/16
e. Cost-Benefit Analysis of Maximum Price Control Laws a. b. Maximum Price Control Laws: i. Benefit some consumers and harm others ii. Harm all producers iii. Does more harm than good 1) DWL is more than if there is no law in place f. Cost-Benefit Analysis of Minimum Price Control Laws f. Cost-Benefit Analysis of Minimum Price Control Laws a. i. Minimum Price Control Laws 1) Benefit some producers and harm others 2) Harms all consumers 3) Does more harm than good a. Rent Control a. Rent Control Law: maximum price control on rental housing b. c. EX: During WWII, rent control laws were not removed Tenants complained about rental housing Landlord didn’t fix them Tenants move out because units are falling apart d. Effects of Rent Control: i. Housing shortage ii. Slums 1) Gangs move in 2) Prostitutes move in 3) Prices for other apartment buildings fall 4) Then, other landlords abandon buildings because they aren't gaining any money iii. Lawbreaking 1) Both tenants and landlords 2) Start charging for things that are not included a) EX: parking space, furniture 3) Bribery: tenants will bribe landlords to give apartment 3) Bribery: tenants will bribe landlords to give apartment a) Offer more money on the side b) AKA Key money i) Pay \$\$ for the key c) No one is going to report because both win -win situation 4) Over complicates things 5) People can get punished for being honest iv. The "Old Widow Effect" 1) If tenant leaves, landlord allowed to raise rent a little higher 2) Incentivize people not to leave apartment 3) One person sticks with a big apartment even though don’t need space==cheaper to live there than a smaller apartment v. Market Distortion 1) Luxury apartments are exempt from rent control laws 2) Landlords are punished from building low income housing 3) Unprofitable to build 4) Being caused by rent control laws vi. Illegal to sublet in Rent Control Law areas e. Maximum Price Controls on Oil i. Domestically produced oil ii. Economic Theory of Maximum Price Controls on Oil iii. 1) Shortage of American produced oil 2) International oil companies raise their prices because of a shortage of American produced oil i. Rationing Laws: laws that restrict people's consumption of certain goods 1) Certain amount of gas to airports, gas stations, etc 2) Many companies had shortages while many had shortages 3) Vacationing areas had a surplus of oil a) No one vacationing 4) Shortage of gas in the cities 5) Gas lines for more than 2 hours a) Some stayed overnight to get gas b) Gas by appointment only c) Stealing gas became a serious problem 6) Caused shortage of electricity a) Restaurants open but no lights b) Less highway lighting 7) When Ronald Reagan came into office, he made an executive order to eliminate price control laws on oil a) Within a week, all gas lines were gone and shortages were gone b) All because of price control laws on oil c) Government crisis not energy crisis g. Price Gouging Laws a. Charging a price that is too high b. Commonly imposed after national disasters c. Whenever there is a national disaster, the price that was used before the disaster is the maximum price during the disaster d. This creates a shortage e. Both buyers and sellers are going to be harmed h. Minimum Wage Laws (minimum price control) a. Minimum Wage Law: minimum price control on workers' wages b. Wages and Productivity i. Wage: price of labor ii. Wages are prices iii. Determined by supply and demand a. Direction of Causation i. Higher Productivity- -> Higher Wages ii. Higher productivity drives wages b. Economic Theory of Minimum Wage Laws i. Effective law is above equilibrium ii. Not effective price control for people with high skills and high productivity (doctors) iii. Effective price control for people with low skills and low productivity (hospitality) iv. Will cause a surplus and unemployment in unskilled workers v. What percentage of the hourl-y paid US labor force gets paid the minimum wage? 1) 3.3% are paid minimum wage 2) State minimum wage laws are more than federal wage laws

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