- Types of Markets in Economics
- Demand Function and Demand Curve
- Supply Function and Supply Curve
- Shifts in Demand and Supply Curves
- Aggregating Demand and Supply Curves and Concept of Equilibrium
- Excess Demand and Excess Supply
- Stable and Unstable Equilibrium
- Types of Auctions
- Four Methods of Distributing Government Securities
- Consumer and Producer Surplus
- Effects of Government Regulation on Demand and Supply
- Price Elasticity of Demand
- Income Elasticity of Demand
- Cross Price Elasticity of Demand
Effects of Government Regulation on Demand and Supply
A government can impose various restrictions that will lead to an imbalance in the quantity and price equilibrium resulting in a deadweight loss.
These interventions include:
- Price ceilings and price floors
- Taxes and trade restrictions
- Minimum wages
- Subsidies and Quotas
A price ceiling is the highest price at which it is legal to trade a particular good or service.
Assume that the demand and supply of housing determines the equilibrium rent of $550 a month and the equilibrium quantity of 4,000 units of housing.
The following graph shows the efficient housing market with maximum consumer and producer surplus.
Suppose the government imposes a rent ceiling of $400 per month which is below the equilibrium price. As a result the following changes happen.
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