Foundations of Economics, 8th Edition

Chapter Summary

Key Points

1. Explain how a price ceiling works, and why a rent ceiling creates a housing shortage and is inefficient and unfair.

   • A price ceiling set above the equilibrium price has no effects.

   • A price ceiling set below the equilibrium price creates a shortage and ­increased search activity or a black market.

   • A price ceiling is inefficient and unfair.

   • A rent ceiling is an example of a price ceiling.

2. Explain how a price floor works, and why the minimum wage creates ­unemployment and is inefficient and unfair.

   • A price floor set below the equilibrium price has no effects.

   • A price floor set above the equilibrium price creates a surplus and ­increased search activity or illegal trading.

   • A price floor is inefficient and unfair.