ECON 202 Lecture Notes - Lecture 3: Price Floor, Economic Surplus, Economic Equilibrium

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9 Feb 2018

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Quantity supplied > quantity demanded = surplus. Quantity supplied < quantity demanded = shortage. We refer to people as consumers when thinking about how they spend their income. Everyone is both a producer and a consumer, but we study producer and consumer choice differently. Demands: why do we want to consume goods, out of necessity, for enjoyment, to display status or identity. We (cid:272)a(cid:374)"t (cid:271)u(cid:455) all the thi(cid:374)gs that (cid:449)e (cid:449)a(cid:374)t. Demand = willingness and ability to buy specific quantities of goods at a given time across a range of prices, all else equal. Determinants of demand: fou(cid:396) fa(cid:272)to(cid:396)s dete(cid:396)(cid:373)i(cid:374)e a(cid:374) i(cid:374)di(cid:448)idual"s de(cid:373)a(cid:374)d fo(cid:396) a p(cid:396)odu(cid:272)t: Income of the consumer: tastes a desire for this and other goods, expectations of income, prices, and tastes, related goods their availability and prices. If marginal utility > 0, total utility increases. When marginal utility reaches zero, total utility maxes out, and when marginal utility becomes negative, total utility decreases.

Related Questions

28) Consider the market for iron ore, an important industrial input. Suppose the government sets a price floor below the free-market equilibrium price. The result will be A) a continuation of the free-market equilibrium price and quantity B) the quantity demanded will exceed quantity supplied and there will be a shortage in the market. C) the quantity supplied will exceed quantity demanded and there will be a surplus in the market. D) a new free-market equilibrium at a lower price and higher output level. E) increased government revenue.

Consider the market for labor depicted by the demand and supply curves that follow.

Complete the following table with the quantity of labour supplied and demanded if the wage is set at $15.00. Then indicate whether this wage will result in a shortage or a surplus.

Wage Labor Demanded Labor Supplied Shortage or surplus

(Dollars per hour) (Thousands of workers) (Thousands of workers)

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $15.

Which of the following statements are true? Check all that apply.

1. In the absence of price controls, a surplus puts downward pressure on wages until they fall to the equilibrium.

2. In this labour market, a minimum wage of $11.50 would be binding.

3. If the minimum wage is set at $15, the market will not reach equilibrium.

4. Binding minimum wages cause structural unemployment.

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1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

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ECON 202 Lecture Notes - Lecture 3: Price Floor, Economic Surplus, Economic Equilibrium

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