<< Chapter < Page Chapter >> Page >

Suppose that a rent control law is passed to keep the price at the original equilibrium of $500 for a typical apartment. In [link] , the horizontal line at the price of $500 shows the legally fixed maximum price set by the rent control law. However, the underlying forces that shifted the demand curve to the right are still there. At that price ($500), the quantity supplied remains at the same 15,000 rental units, but the quantity demanded is 19,000 rental units. In other words, the quantity demanded exceeds the quantity supplied, so there is a shortage of rental housing. One of the ironies of price ceilings is that while the price ceiling was intended to help renters, there are actually fewer apartments rented out under the price ceiling (15,000 rental units) than would be the case at the market rent of $600 (17,000 rental units).

Price ceilings do not simply benefit renters at the expense of landlords. Rather, some renters (or potential renters) lose their housing as landlords convert apartments to co-ops and condos. Even when the housing remains in the rental market, landlords tend to spend less on maintenance and on essentials like heating, cooling, hot water, and lighting. The first rule of economics is you do not get something for nothing—everything has an opportunity cost. So if renters get “cheaper” housing than the market requires, they tend to also end up with lower quality housing.

Price ceilings have been proposed for other products. For example, price ceilings to limit what producers can charge have been proposed in recent years for prescription drugs, doctor and hospital fees, the charges made by some automatic teller bank machines, and auto insurance rates. Price ceilings are enacted in an attempt to keep prices low for those who demand the product. But when the market price is not allowed to rise to the equilibrium level, quantity demanded exceeds quantity supplied, and thus a shortage occurs. Those who manage to purchase the product at the lower price given by the price ceiling will benefit, but sellers of the product will suffer, along with those who are not able to purchase the product at all. Quality is also likely to deteriorate.

Price floors

A price floor is the lowest legal price that can be paid in markets for goods and services, labor, or financial capital. Perhaps the best-known example of a price floor is the minimum wage, which is based on the normative view that someone working full time ought to be able to afford a basic standard of living. The federal minimum wage at the end of 2014 was $7.25 per hour, which yields an income for a single person slightly higher than the poverty line. As the cost of living rises over time, the Congress periodically raises the federal minimum wage.

Price floors are sometimes called “price supports,” because they support a price by preventing it from falling below a certain level. Around the world, many countries have passed laws to create agricultural price supports. Farm prices and thus farm incomes fluctuate, sometimes widely. So even if, on average, farm incomes are adequate, some years they can be quite low. The purpose of price supports is to prevent these swings.

Questions & Answers

what is nationalisation
Awuni Reply
it is a process of converting private assets into public assets by undertaking the control of government or state authority
ru
anything which is widely acceptable as a medium of exchange
Shabana Reply
money ,currency
ru
Hello plz,what is the full mean of tertiary?
al Reply
tertiary also called philoshper
Waseem
tertiary means third..for example primary sector ,secondary and tertiary sector... means three number..
ru
ru 9ice tnk
al
your most welcome.
ru
tnz
al
what is money
Tettey
what is a bank
Walters
a financial institution which holds money for its clients ,which collect deposit and lend money at interest and trades generally in money...
Shabana
what is bankers draft ?kindly explain with example .
Shabana
money "anything which is widely acceptable as a medium of exchange"
Shabana
yes u ryt #shabana
Dar
difference between cost and price
Dar
Shallow definition
Adam
cost"the value of input that is the amount of money which is used to produce a good or service . price"an amount of money which has to b paid to buy something.
Shabana
Tertiary is an adjective(pre position) for stages or levels and refers to "top, final, full term ." ; Advanced.
Anderson
bank draft is a type of cheque which a person buy for to pay someone who is not willing to accept a personal cheque .
ru
tertiary sector is an providing any kind of services.
Madhu
primary sector is 'agriculture', secondary sector is ' industrial sector ,and the tertiary sector is ,' service sector' ,
Dharam
what is occupational structure
Madhu Reply
occupational structure refers to the distribution of occupation on the basis of educational ,socoial ,income level in a society or economy
ru
no that is not a exact meaning
Madhu
than what is exact meaning
Dharam
It refers to also the what is the average income of the person
Madhu
what is deficit
Obiajunwa Reply
deficit = expenses > revenue
Waseem
yeah expenses over revenue results in deficit
Paulina
insufficiency
Anderson
What is What is Equilibrium
Bright Reply
from business point of view it is that point where business revanu are equal to its expenses.
ru
in economy where demand is equal to supply is called equalibrium
ru
Equilibrium in economics is where quantity demanded is equal to quantity supplied
Collins
what are the objectives of devaluation
Oyedun
how the government solve the problem of scarcity
SUNDAY Reply
how government solve the problem of scarcity
SUNDAY
by deciding the output limit for every industry and providing resources to these industries according to output limit .the problem can be solved
ru
and by controlling the activity of production like as a mixed economy this problem can be solved
ru
by proper planning to cater the needs of people, demand & supply process may prove helpful. and by imposing heavy import duty on the product to shift the demand towards available alternative sources.
Abida
changing the methods of production, and tax system
Khushal
In problems of scarcity government should adopt a plan or state budget, form a long term policy , deal with corruption , mobilise resources ,systems and monitor.
Anderson
by doing various plans or scheme and providing various kind of free or in less price to the needy people
Madhu
Plx anyone explain bankers draft by giving example.
Shabana
what is price elasticity of demand?
Asamoah Reply
price elasticity of demand is the percentage in quantity demanded of a good or service to the percentage change in its price.
Cobbina
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes.
TOHEEB
Price elasticity of Demand is a prepotionat change in the demand due to change in price of the goods and service
Dawal
what is monopoly and monopolistic?
KPAAKPA
Price elasticity of demand is the economy measure to show the responsiveness and change in price due to change in quantity.
Lomayani
what is economics
Kenethy Reply
one simple reason to build format in level great leverage for better control knowing grown level greater with word trade..
Larod
Any one who can assit me with Multiplier
Wendy
Yeah sure
Aqrar
You mean Multiplier effect!5
Aqrar
ECONOMICS IS THE STUDY OF ECONOMIC ISSUES OR (ECONOMIC PROBLEMS)ARUSING OUT OF THE FACT THAT RESOURCES ARE SCARCE IN RELATION TO OUR NEEDS,DESIRES OR WE CAN SAY THAT RESOURCES ARE LIMITED OR WANTS ARE UN LIMITED HOW CAN WE UTILIZE LIMITED RESOURCES FOR SETESFY OUR WANTS
Nazneen
is called economics
Nazneen
is call economist
KPAAKPA
then
Nazneen
Economics is all about management of scarce resources. In other words its is about efficience.
Aqrar
Nazneen lets discuss some advance concepts and models
Aqrar
I.can see you have good concepts of Econ
Aqrar
what is multiplier
Wendy
@Wendy A phenomenon whereby a given change in a particular input, such as government spending, causes a larger change in an output, such as gross domestic product.
Aqrar
economic is social science that deal with the human behavior as a difference b/ween earth and scale.
jacob
Economics is a science that studies human behaviour in relation to ends and scarce means which have alternative uses
Collins
economics is a social science that deal with human behavior in aspect of end and scarce and the alternative use
Chibuzor
pls I want to known the difference between inflation and deflation, what is there difference ?
jacob
economics is the study of how man used scarce recourse to satisfy human wants
abdullahi
inflation is the increase in the general price level while deflation is decrease in general price level.
Azhar
evening,dear friends. I'm very glad to be one of you so will you please give me full imformaton about economics epically the time table of the first year of the univerysity
abdullahi
hi iam from india
Naa
economic is the study of human behavior, want by professor Robert say is all about choice and want
KPAAKPA
what is SCARCITY?
KPAAKPA
Scarcity is the limitation of resources within the economy
karl
means that human wants for goods, services and resources exceed what is available
KPAAKPA
Scarcity is inefficient resources to satisfy human want.
Pat
inflation can define as general rise in the price due to too much money in circulation, while is the decrease of the price of goods due to low money in circulation.
Musa
what is the law of dimension return?
jacob
Jacob it's diminishing return
The
The study of house hold management and money measurements
Wardan
hi
Augustine
what is mearnt of economies of scale..pls asist me
Augustine
hii
Vimarsh
when larger amount of output is produced , per unit input costs tend to fall , heading towards economiea of scale ..by acale we mean scale of production here
Vimarsh
economies# scale#
Vimarsh
alright thank u..what are its advantages
Augustine
the cost of production is low and more efficient
Vimarsh
What is demand?
Bright
demand is the various goods and services consumers are willing and able to purchase at a particular price
Paulina
What is inflation
Bright
Economics is a social science focusing on the economy and its agents in production,distribution,buying and selling involving resources such as raw materials and labour at micro ie individual or family and macro ie aggregate or total and state levels . There are several forms or brands or approache
Anderson
scarcity means non availability things or resources which satisfy humans
Madhu
demanding the various goods and services which satisfy humans needs
Madhu
when we calculate shortage and surplus why do we subtract quantity demanded from quantity supplied
The Reply
to determine surplus
Concepcion
true using of graphs
jacob
because we try to avoid negative answers
Eric
what is price ceiling
Nazneen Reply
price ceiling is a government-imposed price control, or limit, on how high a price is charged for a product. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive.
Rina
price effect= Income Effect+ Substitution Effect
Muhammad
Well described Rina
Aqrar
why average revenue is equal to price in monopoly market?
khin Reply
Because One person get the monopole on demand market without any concurrence
Christian
hlw
Luman
hlw
Sheikh
Black money comes from black mark
james Reply
why perfect competition is also known as price taker?
Chening Reply
In perfect competition a firm is a price taker rather to be a price maker because the products it produces are homogeneous so no one will pay extra. price taker means that firms can not set the price it want. If it charged high price then market price its goods will remain unsold.
Azhar
Please keep in mind that it's not allowed to promote any social groups (whatsapp, facebook, etc...), exchange phone numbers, email addresses or ask for personal information on QuizOver's platform.
QuizOver Reply
what calculation for demand and supply
Amoo Reply

Get the best Principles of economics course in your pocket!





Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of economics' conversation and receive update notifications?

Ask