ECON101 Lecture Notes - Federal Insurance Contributions Act Tax, Production Quota, Demand Curve

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greenrabbit29

8 Apr 2014

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Corey Van De Waal

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ECON101 Full Course Notes

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Even though house prices are falling, some rents rose by 10 percent in 2007. The government taxes almost everything we buy. The government subsidizes some farmers and limit the quantities that other farmers may produce. A price ceiling or price cap is a regulation that makes it illegal to charge a price higher than a specified level. When a price ceiling is applied to a housing market it is called a rent ceiling. If the rent ceiling is set above the equilibrium rent, it has no effect. The market works as if there were no ceiling. But if the rent ceiling is set below the equilibrium rent, it has powerful effects. If the rent ceiling is above the equilibrium then it serves as nothing significant because if the rent is above the equilibrium market will use equilibrium price rather than the ceiling price. Because the legal price cannot eliminate the shortage, other mechanisms operate:

Related Questions

Question 1

During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

		$30
		$35
		$40
		Indeterminant with the given information.

2 points

Question 2

Which of the following is an example of a price floor?

		A sale price with a limit on the quantity you can purchase.
		Rent-controlled apartments
		Predatory pricing designed to put a competitor out of business.
		The minimum wage

2 points

Question 3

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		The Affordable Care Act
		Minimum wage laws
		Rent control laws
		Communism

2 points

Question 4

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 5

What is a price ceiling?

		A minimum price consumers are willing to pay.
		A minimum price allowed by law.
		A maximum price allowed by law.
		A maximum price consumers are willing to pay.

2 points

Question 6

Why are the long lines generated by a shortage worse than paying a higher price in money?

		It is not better or worse. Paying in time and paying in money are essentially the same in a market economy.
		Paying with time reduces the value of money, and prevents valuable trades from occurring.
		Waiting in line is a waste of a valuable resource: time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources.
		Paying with time gives those who do not work an advantage over those who do.

2 points

Question 7

Which of the following is a possible effect of a price floor?

		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		Decreases in product quality.
		A shortage of the good.

1.Under rent controls, Select one:

a. the quantity supplied of rental units is greater than it would be under freely competitive markets.

b. there is a shortage of rental units.

c. there is less government involvement in rental markets overall because there is a better supply of low-income housing.

d. all renters are better off than under freely competitive markets.

2.Which of the following is NOT a function of rental prices?

Select one:

a. To stimulate the construction of new housing

b. To allocate existing scarce housing among different people

c. To provide housing to individuals below market value

d. To ration the existing housing stock

3. price floors are designed to

a. establish a minimum allowable price

b. create shortages when none existed before

c. none of these

d. allow free market prices to be achieved

4.what are the effects of an increase in the minimum wage? who would be most affected?

5. the minimum wage laws seek to

a. help teenagers find work

b. assure that all workers are paid the same wage rate

c. assure a minimum standard of payment for work

d. penalize employers that are not complying with labor laws

6. A black market s a market in which

a. goods are sold at outlet prices

b. sales taxes are effectively doubled

c. sales take place exclusively at outlet prices.

d. goods are traded at price above their legal maximum prices

viridianalpaca10

100 word answer needed from the question and artile below.

Question:

Explain whether, and if so how, you would expect laws that prohibit the buying and selling of organs to affect the overall wellbeing of society.

Article: "Should there be a market in organs?"

Some years ago, a Boston newspaper reported the story of Susan Stephens, a woman whose son needed a kidney transplant. When the doctor learned that the mother's kidney was not compatible, he proposed a novel solution: If Stephens donated one of her kidneys to a stranger, her son would move to the top of the kidney waiting list. The mother accepted the deal and soon two patients had the transplant they were waiting for.

The ingenuity of the doctor's proposal and the nobility of the mother's act cannot be doubted. But the story raises many intriguing questions. If the mother could trade a kidney, would the hospital allow her to trade a kidney for an expensive, experimental cancer treatment that she could not afford otherwise? Should she be allowed to exchange her kidney for free tuition for her son at the hospital's mediacal school? Should she be able to sell her kidney so she can use the cash to trade in her old Toyota for a new Lexus?

In many countries, including Australia, it is illegal for a person to sell their organs. In essence, in the market for organs the government has imposed a price ceiling of zero. The result, as with any binding price ceiling, is the shortage of the good. The deal in the Stephens case did not fall under this prohibition because no cash exchanged hands.

Some countries, however, have illicit markets in organs. The World Health Organizations estimates that 10% of all organ transplants, including arount 15 000 kidneys each year, involve a patient from a rich country buying an illegal organ from a citizen of a poorer nation. The temptation to the world's poorest people to sell their 'spare' organs in high. A kidney can sell for around $1500 or more in the illegal trade. This may not sounds like much to you or me. But it can be many years income to a person living in dire poverty.

Some economists believe that there would be large benefits to allowing a free market in organs. People are born with two kidneys but they usually need only one. Meanwhile, a few people suffer from illnesses that leave them wiithout any working kidneys. Despite the obvious gains from trade, the current situation is dire. In Ausralia, the average wait for a kidney transplant is 3.8 years and there are up to 50 deaths a year from people on the waiting list because a kidney cannot be found. In Europe, on average, 12 people die each day waiting for an organ transplant. If those needing a kidney were allowed to buy one from those who have two, the price would rise to balance supply and demand. Sellers would be better off with the extra cash in their pockets. Buyers would be better off with the rgan they need to save their lives. The shortage of kidneys would disappear.

Such a market would lear to an efficient allocation of resources, but critics of this plan worry about fairness. A market for organs, they argue, would benefit the rich at the expense of the oor, because organs would then be allocated to those most willing and able to pay. But you can also question the fairness of the current system.Now, most of us walk around with an etra organ that we don't really need, while some of our fellow citizens are dying to get one. Is that fair?

ECON101 Lecture Notes - Federal Insurance Contributions Act Tax, Production Quota, Demand Curve

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