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Topic 4 - Further Application of Supply, Demand & Elasticities.docx

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Economics 1021A/B
Arvin Dar

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Topic 4Further Application of Supply DemandElasticities 1 Introduction 2 Price floors minimum price 3 Price ceilings maximum price 4 Incidence of taxes and subsidies1 IntroductionThe idea was that nothing interfered with free market forcesIn this topic we dont get that DFirst three section scenarios without that situation o Because something is impeding the operation of free market forces govt regulationsInterventions may be through Quantity or through Price o The govt may say theyre unhappy with the situation and have a Quantity interventionQuota upper limit on the quantity of a commodity that may be suppliedThe supply curve becomes vertical at that quotaDemand and supply meet highermaking a higher priceIf the new price times the new quantity is higher than the old quantity times the old price the dairy farmers for example benefitA quota past to the right of the equilibrium means nothingIf demand increases the price gets even higher 2 Price floors minimum priceSupplydemand graph has an equilibrium Review topic 2 excess supplyexcess demand when the point is above or below the XPrice floor
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