Economics - Price Ceilings, Economic Costs and Consumer Preferences

In: Business and Management

Submitted By charliespall
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Economics Group Assignment With Individual Component
Questions A, B & C
EC161/EC282
Walter Heering

Seminar Group K
Louis Quinton
Toby Redman
Charlie Spall

Question 1……………………………………………………………………………….3
Question 2…………………………………………………………………………….12
Question 3…………………………………………………………………………….23

Toby Redman – Student Number: 13820112 Seminar group K EC161/EC282: Economics coursework: Group assignment with individual component – Question A
Table of Contents Introduction 4 Price Ceiling 4 Main Body 5 How It Effects Landlords 6 How It Effects Consumers 7 How It Creates A Black Market For The Good 8 Conclusion 10 References 11

Introduction
Price Ceiling
A price ceiling is a government imposed price control to make sure that a goods can not be sold for more than a certain price, they cap the price at a certain point rather than letting be sold at the equilibrium. When a price ceiling is set there is more demand in the market than the product being supplied. The government has created excess demand by driving down the price of the product. Taylor (2006) claims that in order for a price ceiling to work it must be set below the equilibrium price of a market. If this does not happen then the ceiling would not have an effect on the price of a good because it would still continue to operate at the current price.
As shown on the graph above when the price ceiling is put into place the price shifts from P* to P1 this then lowers the quantity available to the public at the new price from Q* to Q1. However there is now demand for this product of Q2 this shows that there is excess demand of Q1 to Q2. This means that there is inefficiency within the market where the price ceiling is placed, as there is more demand than supply.
Figure 1 Adapted by Toby Redman. Taken from Riley (2012b)
Figure 1 Adapted by Toby Redman. Taken from Riley (2012b)…...

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