Topic 5 (Last)
Topic 5 (Last) ECON 102
Popular in Introductory Microeconomic Analysis and Policy
Popular in Economcs
This 3 page Class Notes was uploaded by John Om on Wednesday March 2, 2016. The Class Notes belongs to ECON 102 at Pennsylvania State University taught by Wayne Geerling in Winter 2016. Since its upload, it has received 34 views. For similar materials see Introductory Microeconomic Analysis and Policy in Economcs at Pennsylvania State University.
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Date Created: 03/02/16
Topic 5: Price Controls Price Controls Price moves towards equilibrium in free markets The market will eventually clear Price controls: governmentmandated maximum (price ceiling) or minimum (price floor) prices Price Ceiling Price Ceiling: legally established maximum price for a good or service, e.g. rent control Recent Price Controls Often imposed during war Unintended consequences: o Often lead to the creation of black (illegal) markets Other ways to circumvent price controls: o Reduce the size or quantity Rent Control Unintended consequences of rent control: o Decreases in longterm investment o Reduction in quality of apartments o Black markets with higher prices o Units are actually harder to find o Policy hurts the very people it was supposed to help Price Gouging Price gouging laws o Temporary price ceiling o Usually after a natural disaster Consequences o Restricted prices cant ration efficiently o Severe shortages Price Floor Price floor: legally established minimum price for a good or service, e.g. minimum wage, agriculture subsidies (get graph 64 from someone) Minimum Wage Minimum wage: lowest hourly wage rate that firms may legally pay their workers Reasons behind a minimum wage: o Provide a “living wage” o Help working poor who are often unskilled The unintended consequences of a binding minimum wage is unemployment. Caused by: o Decrease in quantity demanded for labor o Increase in quantity supplied of labor o Firms replacing lowskilled jobs with capital, if possible o Firms relocation to countries with lower wages o Shortening hours for workers
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