ECON 101 Lecture Notes - Lecture 5: Deadweight Loss, Price Ceiling, Price Floor
Document Summary
Markets for resources and products are closely linked. In the resource marker businesses demand resources while household supply them. Firms demand resources in order to produce goods and services. Labor market is an important resource market. An increase in the demand for a product will lead to an increase in demand for the resources used to produce it. In contrast a reduction in the demand for a product will lead to a reduction in the demand for resources used to produce it. An increase in the price if a resource will increase the cost of producing products that use it, shifting their supply curve to the left. A reduction in resource prices will have the opposite effect. A price ceiling establishes a maximum price that sellers are legally permitted to charge. When a price ceiling keeps the price of a good below the market equilibrium, there will be both direct and indirect effects.
