- Where we change one or more exogenous variables and
the impact on out endogenous variables.
-Suppliers only care about people's income because they can try to
charge more for gas. So, rise in income causes price and quantity to
-When you look at the change of exogenous variables and how it
affects/changes the endogenous variables.
Why would governments want to intervene in a market?
1. A market failure and the only way it can work well, is if the
government gets involved.
-We are going to be looking at situations where the government
intervenes just because they don't like how it is running and wants to
change the market price.
(Too high or too low).
-There are 2 ways you can change the market price.
1. Fight the market and force them to have a different price.
2. Manipulate the market and using taxes or subsidies.
Ways in which the government fights the market.
1. The case of the Price Floor- Where we feel the price is viewed as
-A price floor is a price below the product- the prices for a
product are not allowed to drop below the floor. (Minimum price
Ex: Farm Policy.
2 problems that farmers face-
1. Short Run: Unstable weather (Look at graph).
-Governments may intervene with farmers so they can stabilize their
income--with how much it fluctuates.
2. Long Run: Technological change.
-The price in the markets have fallen because big corporations are
using the technological advances for less price on every product, so
the small family corporations (that aren't using the new technology)
have to sell their products for the same low price--so they end up
losing from this advance.
What to do about the surplus?
1. Government can buy it and give it to poor countries. This is a
very harmful thing to do because that outs the farmers in those
countries to lose money.
-If we really wanted to help them, we would give them the money so
they could spend it freely.
-So instead, the government buys it up and stores it. This gets
expensive because the huge storage containers cost billions of
dollars. 2. Artificially shift the demand curve to the right. "Got Milk?" as
Ex) Food Stamps- saying you "must spend this on food" blocks them
from spending it on anything else.
3. Artificially shif