The Short Side of the Market
In situations where a price control prevents a market from reaching equilibrium, the actual quantity traded is dictated by the 'short side' of the market. This principle states that the amount of a good exchanged will be whichever is less: the quantity supplied or the quantity demanded. For instance, when a rent ceiling leads to excess demand (a shortage), the quantity of rentals is limited by the supply, making suppliers the short side of the market.
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CORE Econ
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
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Effect of Rent Control on Quantity Supplied
The Short Side of the Market
Consider a standard graphical model of a rental market with price on the vertical axis and quantity of apartments on the horizontal axis. The market features a downward-sloping demand curve and an upward-sloping supply curve. If a maximum legal price is set below the original market-clearing price, what relationship between quantity demanded and quantity supplied does the graph show at this new, lower price?
Interpreting a Rent Control Graph
Consider a standard graphical model of a rental market with price on the vertical axis and quantity of apartments on the horizontal axis. The model includes a downward-sloping demand curve and an upward-sloping supply curve. A maximum legal price is established below the point where the two curves intersect. Match each graphical feature to its correct economic interpretation in this context.
Rental Market Policy Analysis
In a standard graphical model of a rental market with an upward-sloping supply curve and a downward-sloping demand curve, if a binding price ceiling is imposed, the actual quantity of apartments rented in the market is found at the intersection of the price ceiling line and the demand curve.
Stakeholder Analysis in a Regulated Rental Market
In a graphical model of a rental market, the supply and demand curves intersect at the point (500 apartments, $1000/month). A maximum legal price is then set at $800/month. At this new price, the point on the supply curve is (400 apartments, $800/month) and the point on the demand curve is (650 apartments, $800/month). What is the resulting shortage of apartments in this market?
Consider a standard graphical model of a rental market with an upward-sloping supply curve and a downward-sloping demand curve. A government imposes a binding price control, setting a maximum legal rent below the original market-clearing price. Arrange the following graphical interpretations in the correct logical sequence to show the impact of this policy.
In a standard graphical model of a rental market with an upward-sloping supply curve and a downward-sloping demand curve, when a maximum legal price is set below the market-clearing price, the actual quantity of apartments rented is found at the point where the horizontal line representing the maximum price intersects the ___________ curve.
Consider a graphical model of a rental market with a legally mandated maximum price set below the market-clearing level. If there is a subsequent increase in consumer demand for apartments (e.g., due to a local population boom), what is the resulting effect on the actual number of apartments rented and the size of the apartment shortage, assuming the maximum price remains fixed?
Rental Market Policy Analysis
The Short Side of the Market
Consider the market for rental apartments in a city, represented by the following weekly supply and demand schedule:
Price (per month) Quantity Demanded Quantity Supplied $1,400 1,000 apartments 5,000 apartments $1,200 2,000 apartments 4,000 apartments $1,000 3,000 apartments 3,000 apartments $800 4,000 apartments 2,000 apartments $600 5,000 apartments 1,000 apartments If the city government imposes a legally-mandated maximum rent of $800 per month, what will be the outcome in this market?
A government-imposed price ceiling set above the market-clearing price will cause a persistent shortage of the good.
Analyzing the Impact of a Minimum Wage
A company sets a wage for its workers, knowing that it cannot perfectly monitor their effort. If a worker is caught shirking (not working), they are fired. A new government policy is introduced that significantly increases the duration and amount of unemployment benefits a fired worker can receive. From the company's perspective, how does this policy change affect the wage it must offer to motivate its employees to work hard, and why?
Comparing Price Ceilings and Price Floors
Calculating Market Surplus from a Price Floor
Match each price control scenario to its resulting market condition. The 'market-clearing price' is the price where the quantity sellers are willing to provide equals the quantity buyers wish to purchase.
Consider the market for a specific agricultural good, where the price is measured in dollars per bushel and quantity is in thousands of bushels per month. The market-clearing price, where the quantity sellers are willing to provide equals the quantity buyers wish to purchase, is $10. At this price, 200,000 bushels are bought and sold. The government, aiming to support farmers, imposes a price control legally requiring the price to be no less than $12 per bushel. At this new price of $12, buyers are only willing to purchase 150,000 bushels, while farmers are willing to supply 220,000 bushels. What is the direct result of this price control in the market?
Evaluating a Rent Control Policy
Concert Ticket Pricing Scenario
Learn After
Analysis of a Rent Ceiling with Shifts in Demand and Long-Run Supply (Figure 8.25)
A local government sets a maximum price for concert tickets at $50 to make events more affordable. At this price, 3,000 fans want to buy tickets, but the venue is only willing to sell 1,500 tickets. How many tickets will actually be sold, and why?
Agricultural Price Supports
A market is in disequilibrium due to a government-imposed price control. Match each market scenario with the correct description of which 'side' of the market determines the actual quantity of the good exchanged.
Impact of a Minimum Wage on Employment
A government imposes a binding price floor on raw wool, setting a price above the market equilibrium. This policy leads to a situation where wool producers are willing to supply a larger quantity of wool than textile mills are willing to purchase. In this scenario, the actual quantity of wool sold in the market will be equal to the quantity supplied by the producers.
Market Outcomes Under Binding Price Controls
The market for rental apartments in a city is described by the following equations: Demand is Qd = 20,000 - 10P and Supply is Qs = 5,000 + 5P, where P is the monthly rent. If the government imposes a maximum rent of $800 per month, the actual number of apartments rented will be ____.
In response to a public health crisis, a government imposes a strict price cap on a life-saving drug, setting the price below the level where the quantity demanded equals the quantity supplied. Which of the following statements most accurately analyzes the resulting market outcome?
Evaluating a Fuel Price Cap Policy
Consider the market for unskilled labor where the wage is the price. A new law establishes a minimum wage that is above the market's equilibrium level. At this new, higher wage, 5,000 people are willing to work, but businesses are only willing to hire 3,500 people. Which of the following statements accurately analyzes the outcome in this market?