Textbook Notes (368,666)
Canada (162,047)
Economics (359)
ECON 101 (172)
Chapter 5

Economics 101: Chapter 5

3 Pages
66 Views
Unlock Document

Department
Economics
Course
ECON 101
Professor
Robert Gateman
Semester
Fall

Description
Economics 101: Principles of Microeconomics Chapter 5 5.1 The Interaction Among Markets  No market or industry exists in isolation from the economy's many other markets o Feedback: A change in one market will lead to a change in one or several markets  Partial equilibrium analysis: the analysis of a single market (feedback to other markets is ignored) o Small markets, will have relatively little effect on other markets o Feedback effects on small markets will also be smaller  General equilibrium analysis: the analysis of all markets together o Must consider what is happening in each individual market o Feedback effects among individual markets are also considered 5.2 Government-Controlled Prices  Attempt to hold the price of a good at some disequilibrium value  Either hold it above or below the equilibrium price Disequilibrium Price:  In a free market Qd and Qs adjust naturally to determine quantity exchanged  At any disequilibrium price, Q exchanged is determined by the lesser of Qd or Qs Price Floors:  A minimum price that is effectively set above the equilibrium price (binding)  Illegal to sell products below the price, guaranteed minimum price, or price level  Binding price floors → leads to excess supply o Unsold surplus or the someone (usually government) buy up excess supply  Producers are better off on selling products at the price floor rather than a lower price o Minimum wage, agriculture price etc.  Losses are spread across consumers, the demand side Price Ceilings:  A maximum price that is effectively set below the equilibrium price (binding)  Lead to excess demand, Q exchanged less than the free market equilibrium  In a free market, prices adjust to take care of excess demand o A price adjusted market must have other factors that help allocate the excess demand  Sellers preference: when sellers decide to whom they will and will not sell their scarce supplies to o Opposite of this method is rationing, Soviet Union, Eastern Europe, World Wars  Black market: any market in which goods are sold illegally at prices that violate a price control o Binding price ceilings always create the potential for a black market  Government have three main goals when imposing price ceilings: a. Restrict production b. Keep specific prices down c. Satisfy notion of equity in the consumption of a product that is temporarily in short supply Economics 101: Principles of Microeconomics  More effective a price ceiling, the more impact of a black market reduces the goals of government 5.3 Rent Controls Predicted Effects on Rent Controls  Qd must exceed Qs, prices will then be held below price equilibrium (Qs will decrease)  Shortage will lead to alternative allocation, laws in place to stop from eviction  Black markets appear that require tenants to pay extra fee, may force tenants out  In the short term, little will change because these goods are durable  In the long run, conversions and new ventures can take place o The supply shrinks and housing issues worsen Who Gains and Who Loses?  Existing tenants gain from the
More Less

Related notes for ECON 101

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit