lectureOutline04 - Introduction to Economics Topic 4:...

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ECO 100Y Introduction to Economics Topic 4: Interventions in the Market Source: LR12, Ch 5, pgs 97-end; LR11, Ch. 5, pgs 103 to 110; LR10, Ch 5, pgs 105 to 116,118-119. Also LR12, Ch. 4, pgs 84-87; LR11, Ch. 4, pgs 86-88; LR10, Ch.4, pgs 81-83. Some additional concepts are introduced in the lecture. 1 Topic 4: Interventions ECO 100 W.G. Wolfson Types of Interventions We will analyze 5 different interventions in competitive markets with –vely sloped D and +vely sloped S: Maximum Price (Price Ceiling) Minimum Price (Price Floor) Quota (Quantity Restriction) Deficiency Payment (Subsidy Per Unit) Excise Tax (Per Unit Tax) Keep in mind the original equilibrium (P 1 and Q 1 ) and the new P-Q point (P 2 and Q 2 ) Is the new P 2 - Q 2 point sustainable? ECO 100 W.G. Wolfson 2 Topic 4: Interventions 1 2
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Price Ceiling No effect when set above the equilibrium price Effective only when set below the equilibrium price If below the equilibrium price, the quantity traded is determined by the quantity supplied An effective price ceiling : Leads to situations of excess demand Creates the conditions for cheating i.e., the development of a “black market” Rent controls are an example of price ceilings ECO 100 W.G. Wolfson 3 Topic 4: Interventions P Q S D P* Price Floor No effect when it is set below the equilibrium price Effective only when set above the
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This note was uploaded on 02/21/2009 for the course ECONOMICS ECO100 taught by Professor J.l.carr during the Spring '08 term at University of Toronto- Toronto.

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lectureOutline04 - Introduction to Economics Topic 4:...

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