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Lecture

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Department
Economics
Course
ECON 1000
Professor
David Stamos
Semester
Winter

Description
Managed markets Price controls: are government rules or laws that inhibit the formation of market-determined prices. Quotas: Physical restriction on output. Price ceilings: If the government decides to impose a price limit beneath the original equilibrium point E0the resulting price control is called a price ceiling. The resulting problem of course is excess demand because individuals wish to purchase more goods than are on the market. In a free market the price would adjust upward to eliminate the shortage, but as it is a controlled market, it cannot. So some other way of allocating the available supply must evolve. Price floors: An effective price floor results when the government imposes a price control above the market equilibrium E ,0or market clearing price. This will result in excess supply because suppliers wish to produce more than buyers are willing to purchase. Note: for both price ceilings and floors, the actual quantity traded is the lesser of the demand quantity or supply quantity at the going price, short side dominates. Quotas: represent the right to supply a specific quantity of a good to the market; it is a method of keeping the price higher that the free market equilibrium price. As an alternative to creating a price floor the government can impose a quota/ restrict supply to generate a high price. Summing individual differences: Market demand: is the horizontal sum of the individual demands at each price. Market supply: represent the sum of the producers supply curves at each price in an industry. What how and for whom 1. The market decides how much of a good or service should be supplied by finding the price at which quantity demanded equals quantity supplied. 2. The market determines for who the goods and services
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