PAM_2000_Spring_2009_Lecture_4

PAM_2000_Spring_2009_Lecture_4 - PAM 2000 Lecture 4 Agenda...

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    PAM 2000 Lecture 4 Agenda: Remarks on market equilibrium Policy interventions: price floors and ceilings Price Elasticity of demand Income elasticity of demand Cross price elasticity of demand
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    Reading for PAM 2000 P. Ch. 4, 5 M, B, N. Ch. 5-8, 10
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    Orange Market Equilibrium p , $ per Lb 220 176 D S e 233 246 194 207 Q , Million lbs of oranges per ye 0 3.95 3.30 2.65 Excess supply = 39 Excess demand = 39
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    Effects of a Shift of the Demand Curve D 1 D 2 S 176 0 220 228 232 Q , Million Lbs of Og. per year Excess demand = 12 3.30 3.50 e 2 e 1 p , $ per Lb
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    Market Equilibrium “Prices allocate resources” What “resources” are being allocated here? Recall the basic economic problem Price are one mechanism to allocate resources based on who pays for the good What are other ways to allocate resources?
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    Effects of Price Floors and Price  Ceilings Definition of a price floor? Definition of a price ceiling? Effects of each? Example of price floor? Example of price ceiling? Effects of non-market allocation of scarce resources?
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    Minimum Wage w , Wage per hour L d L * L s Minimum wage, price floor S D L , Hours worked per year Unemployment e w * w
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    Some stats on the minimum wage Unemployment rate in US economy is low (< 5%?) Rate among teens is much higher (about 16%) Rate among African-American teens is 33% JEL estimates: a 10% increase in the minimum wage leads to a 2% increase in teen unemployment
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