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ECON 2105 week 4 notes

by: Randi

ECON 2105 week 4 notes ECON 2105

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About this Document

We covered price controls this week
Class Notes
price controls, price ceiling, Pricefloor, surplus, shortage, market, blackmarket, binding
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This 3 page Class Notes was uploaded by Randi on Sunday September 11, 2016. The Class Notes belongs to ECON 2105 at University of Georgia taught by McWhite in Summer 2016. Since its upload, it has received 8 views. For similar materials see Macroeconomics in Macro Economics at University of Georgia.

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Date Created: 09/11/16
Week  4  Notes     ECON 2105 PROF.  MCWHITE     • Market  clearing  price:   o Also  known  as  the  equilibrium  price       • Price  controls:   o Price  floor  or  Price  ceiling   o Set  in  place  by  the  government     o Usually  do  more  harm  than  good   o Usually  do  not  help  the  people  they  were  intended  too   o A  binding  price  floor/ceiling  is  one  that  impacts  the  market   o Black  markets  can  arise  because  of  price  controls     • Price  gouging  laws:   o Temporary  ceiling  on  prices  that  sellers  can  charge  during  times  of   national  emergency   § Typically  happen  after  natural  disasters   § In  most  states,  this  is  illegal     • Price  floor:   o The  price  floor  is  the  lowest  allowed  price  that  a  product  can  be  sold   at   o Price  floor  can  be  binding   § This  means  that  the  set  price  is  above  the  equilibrium  price     o An  example  of  a  price  floor  is  the  minimum  wage   § Most  minimum  wages  are  non-­‐binding       P   Supply       B   C   Price  floor       A       Demand     QD           • This  figure  depicts  a  binding  price  floor…  it  is  a  price  set  above  the   equilibrium  point   • Point  A  was  the  original  equilibrium  point  for  the  labor  market  without  the   minimum  wage  price  floor.   Week  4  Notes     • There  is  now  a  surplus  of  labor  in  the  market  (unemployment)  between   points  B  and  C   • There  are  more  people  demanding  jobs  versus  willing  employers       Week  4  Notes     • Price  ceiling:   o A  set  price  that  the  market  cannot  exceed   o An  example  is  Rent  control   § Rent  control  is  ineffective  for  helping  low-­‐income  residents   § It  usually  subsidizes  higher-­‐income  residents’  living   § It  does  not  incentivize  land  lords  to  keep  their  apartments  in   good  living  condition       Supply   P         A     B   C   Price  ceiling         Demand   QD             • The  figure  above  depicts  a  binding  price  ceiling  in  rent  control   o The  equilibrium  price  A  is  above  the  set  price…  the  market  cannot   obtain  equilibrium   o The  distance  between  point  B  and  C  represent  the  shortage  in  the   housing  market   § The  quantity  demanded  for  housing  in  point  C  far  exceeds  the   quantity  that  is  being  supplied  at  point  B  


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