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ECON101 Lecture Notes - Lecture 9: Price Floor, Invisible Hand, Equilibrium Point

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Verified Note
mauvesquirrel844
24 Sep 2018
School
University of Alberta
Department
Economics
Course
ECON101
Professor
Gordon Lee

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ECON101 Lecture 8: SUPPLY

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ECON101 Lecture Notes - Lecture 9: Price Floor, Invisible Hand, Equilibrium Point

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ECON101 Lecture 10: ECON 101 - Lecture 10: Elasticity of Demand

Document Summary

Topics co(cid:448)ered i(cid:374) toda(cid:455)"s lecture: other forces in the economy, price regulation (cid:862)economic forces ration commodities and services through changing prices. The market works like an invisible hand guiding economic forces to coordinate individual actions and allocate scarce resources. All individuals acting only in their own self interest are guided by the invisible hand of the market to produce allo(cid:272)ations that are (cid:271)est for so(cid:272)iety. (cid:863) adam smith, wealth of nations 1776. Canada who would like to have children but cannot. It is also a fact that there are couple in. Canada who have kids that wold like to not. Although nonequilibrium prices can occur naturally, they seldom last for long. However, governments may impose nonequilibrium prices for significant time periods. Price control = government-mandated minimum and maximum prices. Can be imposed by both federal and provincial governments. A government sets the minimum price allowed. When price floors are set above the equilibrium prices, surpluses will result.

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Related Questions

Considered by many to be the founder of modern economics, Adam Smith published his masterpiece The Wealth of Nations in 1776. Smith wrote in support of market economies as feudalism in Europe was unravelling. Hence, many of his insights clashed with the ideas of his contemporaries whom continued to be drawn to less modern notions of markets as governed by duties owed, hierarchy, master and servant, and paternalism. In Smith’s view, markets are guided by the self-interests of market participants, not by obligations imposed, moral or otherwise, by religious authorities, aristocracy, and crown.

Consider the following quote taken from The Wealth of Nations:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens….Every individual…neither intends to promote the public interest, nor knows how much he is promoting it….He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part in it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

Now suppose that Jim enters the market to purchase a gallon of milk from a local dairy. Jill enters the market to contribute $100 to a charitable cause. Based on Smith’s analysis, which transaction is guided solely by self-interest? How could either transaction contribute to the public interest? Is one superior to the other in that the first transaction confers mutual economic gains to both parties while the other confers a gain to only a single party? Are two gains superior to one? Briefly discuss.

Rules: Limit your thoughts to no more than two pages total, using Microsoft Word, 12 point type in Times New Roman font. Double spaced with one inch margins throughout. Do not worry about being right or wrong, the purpose of this exercise is for you to stretch your mind and to think critically