ECON 219 Chapter Notes - Chapter 5: Demand Curve, Efficient-Market Hypothesis, Price Ceiling

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Published on 18 Apr 2013
McGill University
ECON 219
[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
government-controlled prices
iPods --> small number (1) of large producers, different from other similar mp3s,
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
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
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