Effects of War on the Fuel and Car Market Equilibrium with the Aid of a Diagram

>> The

Market Strikes Back

B I G C I T Y, N O T - S O - B R I G H T I D E A S



given permission. Rent control was introduced during World War II to protect the interests of tenants, and it still remains in force. Many other American cities have had rent control at one time or another, but with the notable exceptions of New York and San Francisco, these controls have largely been done away with. Similarly, New York’s limited supply of taxis is the result of a licensing system introduced in the 1930s. New York taxi licenses are known as “medallions,” and only taxis with medallions are allowed to pick up passengers. And although this

can find almost anything—that is, almost anything, except a taxicab

when you need one or a decent apartment at a rent you can afford. You might think that New York’s notorious shortages of cabs and apartments are the inevitable price of big-city living. However, they are largely the product of government policies—specifically, of government policies that have, one way or another, tried to prevail over the market forces of supply and demand. In the previous chapter, we learned the principle that a market moves to equilibrium— that the market price rises or falls to the level at which the quantity of a good that people are willing to supply is equal to the quantity that other people want to buy. But sometimes governments try to defy that princi-

What you will learn in this chapter:

The meaning of price controls and quantity controls, two kinds of government intervention in markets How price and quantity controls create problems and make a market inefficient Why economists are often deeply skeptical of attempts to intervene in markets Who benefits and who loses from market interventions, and why they are used despite their wellknown problems What an excise tax is and why its effect is similar to a quantity control Why the deadweight loss of a tax means that its true cost is...