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Understanding Price Controls: Effects on Consumers and Housing Markets

This text explores the implications of price ceilings and rent control on resource allocation in markets. It discusses how price ceilings aim to protect consumers but can lead to shortages, inefficient resource distribution, and issues like discrimination and bribery. The text also examines the effects of minimum wage policies, highlighting arguments for and against them, such as their influence on living standards and employment rates. The analysis seeks to shed light on how government interventions can disrupt market efficiencies and create new challenges.

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Understanding Price Controls: Effects on Consumers and Housing Markets

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  1. Ch. 6 Price Controls • P ceilings try to satisfy whom? • Consumers • P ceilings lead to ….. • Shortages …. • …..which lead to a question – how do we allocate resources? • Rationing based on………… • Lines, discrimination, bribery…….

  2. Efficiency? The market is not cleared There are consumers willing and able to pay P1 but they did not get a chance to buy the good. Pe is the “MARKET CLEARING PRICE”

  3. RENT CONTROL • Goal? • make housing affordable to poor • Elasticity of Supply in short run? • perfectly inelastic in short run- why? • Supply is not going to immediately change – will take time • How /why will supply become more elastic in long run? • …your ideas …. • How will supply be rationed? • …your ideas…

  4. Now Govt. faced with new problems…(four)… • Less housing supply • Less quality housing • Discrimination in housing market • Laws to prevent Discrimination / Hard to enforce • ……………Efficient allocation of resources???? • Free Markets Ration goods…..but rationing based on…. • Price …… = EFFICIENT ….and Unbiased • Allocate the goods to the buyers most willing to pay. • Allocate the buyers to the sellers with the lowest price

  5. Minimum Wage • Argument for Minimum Wage • Adverse effects are small • Increase standard of living for poor • Argument against Minimum Wage • Unemployment / lay offs • Mostly for teens – so not raising standard of living for heads of households • Encourages dropouts

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