ECO 1 PRICE CEILINGS AND FLOORS – DEADWEIGHT LOSS

1. ECO 1PRICE CEILINGS AND FLOORS – DEADWEIGHT LOSS Erkmen Giray ASLIM (erkmengirayaslim.com) e-mail: era314@Lehigh.edu 09/04/2015 Department of Economics Lehigh University

2. ATTENDANCE QUESTION Write your name, date, and section number. • What is my first name? • Does rent control makes it easier for you to find an affordable apartment?

3. DISCUSSION • Should the government control apartment rents? • New York, San Francisco, LA and nearly 200 smaller cities • New York has 2 million apartments – 1 million subject to rent controls. Others? (Market) • Prices are much lower in rent controlled apartments. Who benefits? • Consumer vs. Landlord – Low income vs. High income • We will see that a price ceiling or a price floor reduces the economic surplus. • Some people win, some lose, and there is a loss in economic efficiency.

4. CONSUMER SURPLUS Total Consumer Surplus in the Market for Chai Tea The difference between the highest price and what is actually paid! What is the marginal benefit? (Additional Benefit)

5. PRODUCER SURPLUS Measuring Producer Surplus The difference between the lowest price and what is actually received! What is the marginal cost? (Additional Cost)

6. ECONOMIC SURPLUS The benefit to society

7. DEADWEIGHT LOSS Reduction in ES: Market is not in competitive equilibrium. This amount is not produced! When we have a competitive equilibrium, then we can define economic efficiency (MC=MB and CS + PS is at maximum).

8. PRICE FLOORS

9. PRICE FLOORS Wage increases for low-skilled workers. But what happens to job opportunities? Positive or normative analysis? What is the minimum wage in the US?

10. PRICE CEILINGS