Economics - Price Ceilings, Economic Costs and Consumer Preferences

7042 Words Apr 26th, 2016 29 Pages
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
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Begg et al (2011) explains that price ceilings are introduced when there is a shortage of a good. This is because if it was not in place then the rich people would consume all the good as poorer people would not be able to afford it as easily. This shows that it would become easier for poorer people within theses cities to afford to rent these flats and they would also have more money to spend on other goods and services.
Figure 2 Adapted by Toby Redman.
Figure 2 Adapted by Toby Redman.

With a price ceiling in place there will always be an inefficiency within the market. This is because the market will never operate at the market equilibrium point. If you look at the graph below you will see that there is a shaded area, this is the welfare loss to society at the new price ceiling. This is because compared with the equilibrium price, where supply and demand interact at one point, there is now less supply and more demand. In this graph supply equals the marginal cost to society and demand equals the marginal benefit. The marginal cost is the cost of producing one for good and the marginal benefit is the benefit of consuming the next good. So as long as the benefit is above the cost of producing then the consumers will want to consume more.
How It Effects Landlords
Landlords are hit badly during a price ceiling. this because it caps the amount that they can earn through renting their properties. This can lead to having a negative effect on the whole

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