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ECON 219 (3)
Chapter 5

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McGill University
Economics (Arts)
ECON 219
Christopher Ragan

ECON 219 CHAPTER 5 [the shifting demand curve traces out the supply curve, price and quantity will not help to determine demand & supply curves] The Interaction Among Markets partial-equilibrium analysis examines a single market in isolation and ignores feedback effects from other markets (ex : anchovy prices go up to do climate problems, thus price for protein supplements go up and then it costs more to raise cattle) In general, this is appropriate when the specific market is quite small relative to the entire economy. Most of microeconomics uses partial-equilibrium analysis When economists study all markets together, they use general-equilibrium analysis. government-controlled prices iPods --> small number (1) of large producers, different from other similar mp3s, NO SUPPLY CURVE Conspicuous consumption --> receiving money from showing off products Monopsonist --> only buyer [ Government intervention in an otherwise well-functioning market = reduced effifiency ] disequilibrium prices if price is set above equilibrium, some sellers will be unable to find buyers conversely, if price is set below equilibrium, some buyers will be unable to find sellers with administered prces, the quantity is determined by the lesser of quantity demanded and supplied assumptions : all transactions are voluntary and if a transaction will make both buyer and seller better off, it will happen price floor -- minimum price, make it illegal to sell the product below the controlled price (above the free-market equilibrium) excess supply black market -- any market in which goods are sold at illegal prices example of price floor --> minimum wage price ceiling (binding) --> maximum price set below the free-market equilibrium --> excess demand --> Three Main Objectives to restrict production (ceiling or floor will work) to keep specific prices down satisfy (normative) notions of equity rent control • 1st generation : rent of a particular type cannot be more than $xxx.xx (price ceiling) • 2nd generation : rent cannot be increased more than xx% per year. binding rent controls are a specific form of price ceiling. effects : a housing shortage, alternative allocation schemes in black markets, illegal schemes like "key money" (or others!) allocation schemes (i'll only rent to xxx-sellers preferences) who gains and who loses? existing tenants in
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