In this lesson, we continue our analysis of what happens when governments intervene in market processes. We will talk about how firms seek to enrich themselves, at the expense of the general welfare of society, by participating in a form of behavior called "rent-seeking." We will discuss why it is difficult to get this practice under control.
We will then look at some of the instruments that the government uses to try to modify market outcomes, namely, the setting of artificial controls on prices, and we will examine what the actual outcomes are, and why they are often different from the desired outcomes.
What will we learn?
By the end of this lesson, you should be able to:
- define and explain what economic rents are;
- describe what we mean by "rent-seeking" behavior;
- explain why it is difficult to eliminate rent-seeking behavior;
- explain the idea of concentrated benefits and distributed costs;
- describe what a price cap is and graph it on a supply and demand diagram;
- describe what a price floor is and graph it on a supply and demand diagram;
- explain what we mean by the "hidden costs" of price controls, and the effects of hidden costs on producer and consumer surplus.
What is due for Lesson 9?
This lesson will take us one week to complete. Please refer to Canvas for specific time frames and due dates. There are a number of required activities in this lesson. The chart below provides an overview of those activities that must be submitted for this lesson. For assignment details, refer to the lesson page noted.
|Requirements||Submitting Your Work|
|Reading: Pages 72-78 (The Economics of Price Controls) in the text, and any required material linked to in the lesson.||Not submitted|
|Lesson 8 and 9 Quiz and Homework||Submitted in Canvas|