ECON 110 Lecture Notes - Lecture 5: Consideration, Rent Regulation, Price Controls

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17 Oct 2016

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Equilibrium is determined by the forces of supply and demand. A shortage (excess demand) will occur at prices below the equilibrium. A surplus (excess supply) will occur at prices above the equilibrium. Sliding along a demand or supply curve is caused by a change in the price of the good: price controls. Attempt to set, or manipulate, prices through government involvement in the market. Meant to ease perceived burdens on the population: price ceiling: A legal maximum on the price of a good or service. A legal minimum on the price of a good or service. The government decides to implement a price floor on milk of per litre. Minimum wage: the lowest hourly wage rate that firms may legally pay their workers it functions as a price floor. Rationale for minimum wage: provide a living wage, help the working poor - who are often unskilled.

Related Questions

Consider the demand and supply for used science textbooks. Supposed that the used textbook market is competitive with supply given by P=10+.1Q and demand given by P=100-.08Q. Solve for the competitive market equilibrium price and quantity of used textbooks in this market. Determine the quantity of shortage or surplus that would occur if a price ceiling (maximum allowable price) of $35 was imposed on this market. Describe why the market fails to be efficient in the context of this ceiling and what market participants commonly do to overcome the inefficiency caused by official prices below the equilibrium market price. If the intention is to help low income students, compare the effects of the price ceiling to an alternative scheme of giving $25 purchase vouchers to low-income students. In your answer, consider the effect of the vouchers on the demand for textbooks.

graymink990

Agree or disagree and why?

Price increases and decreases are linked to the current state of the economy that surrounds a product. When discussing these price fluctuations on a product, it is important to look into two core economics, (market equilibrium and price equilibrium). Market equilibrium, (or the set rate of the economy), is when the supply in the market is equal to the demand in the market. Price equilibrium is the price of a good or service when its supply is equal to the demand in the market. Whether a price on a product or service increases or decreases is dependent on if the economy is above, or below market equilibrium. For example, if the price of a product or service rises, it is likely that the demand for that product was higher than its supply. This creates a shortage in the product. On the other hand, if the price of a product or service drops, it is likely that the demand for it has decreased. This creates a surplus of a product. In order to take care of the surplus of a product, prices must go down and sales must go up. This method could be compared to a sales rack where a collection of different clothing styles are 40% off. This price drop heightens a customer's interest in spending. For example, Target's stores contain sales racks in order to downsize the surplus of outdated styles/products. This method creates more room for newer inventory.

amethystantelope937

"Shortages, price controls, and queuesDuring the late 1980s and early 1990s, economic reforms initiated by Soviet president Mikhail Gorbachev began to raise consumer incomes; however, the Soviet government continued to impose price ceilings on basic goods like food, clothing, and household goods. As higher income led to increased demand, severe shortages of many goods and long lines at all kinds of stores became common. Finally, in January 1992, a new Russian government under president Boris Yeltsin removed retail price controls on most goods. Within a month, prices more than doubled on average, and lines disappeared. Analyze these events using the supply and demand model. First draw a supply and demand diagram for some normal good such as butter. Show the market in equilibrium at a price of 1 ruble per kilo before the beginning of the Gorbachev reforms. Draw a horizontal line at that level to represent the price ceiling; no butter can be sold for more than 1 ruble per kilo. Next show the effect of rising income. Does it shift the supply curve? Does it shift the demand curve? What is the shortage or surplus at the controlled price? After the price control ends, assuming no further shift in the supply and demand curve, what happens to the price? What happens to the shortage or surplus?"

crimsongerbil60

ECON 110 Lecture Notes - Lecture 5: Consideration, Rent Regulation, Price Controls

ECON 110 Full Course Notes

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