Outline_Chapter_4

Outline_Chapter_4 - Chapter 4 Supply and Demand:...

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Chapter 4 Supply and Demand: Applications and Extensions I. The Link Between Resource and Product Markets A. The markets for resources and products are closely linked. 1. Changes in one will affect the other. a. An increase (decrease) in resource prices will reduce (increase) supply in the product market. b. An increase in product demand will increase the demand for resources used in production of the good. II. Economics of Price Controls A. Price Ceilings 1. A price ceiling is a legally established maximum price that sellers may charge. a. Example: rent control 2. The direct effect of a price ceiling below the equilibrium price is a shortage: quantity demanded exceeds quantity supplied. B. Secondary Effects of Price Ceilings 1. Reduction in the quality of the good. 2. Inefficient use. 3. Lower future supply. 4. Non-price rationing will be of more importance. C. Effects of Rent Control 1. Shortages and black markets will develop. 2.
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Outline_Chapter_4 - Chapter 4 Supply and Demand:...

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