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9-13 lecture notes

9-13 lecture notes - • If something restricts the...

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Market Model: Demanders/Buyers (-) (+) (+) (-) (+) (+) (-) (+) o Dx=f(Px, Income, Psubs, Pcomp, Tastes, Expectations, Taxes/Subsidies) o Px up, Qx down; Px down, Qx up o Income up, Dx up; Income down, Dx down (assuming x is a normal good and not inferior) Suppliers/Sellers (+) (-) (+) (-) (+) (-) o Sx=f(Px, Cost, Resources, Taxes/Subsidies, Expectations) o Cost includes wages, rent, interest, advertising, transportation, energy, etc. Markets always converge to equilibrium assuming there is no control of the market Flexibility of prices is what makes the markets go to equilibrium
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Unformatted text preview: • If something restricts the flexibility then the markets will never reach equilibrium • If we rely on equilibrium some people will be deprived- some because they are unwilling to pay and some because they are unable to pay • Government can interfere and lower prices (price ceiling) and now people are happy because they can buy the product but sellers are unhappy and they will provide less to sell, making the situation worse • Therefore, tweaking with the free market is bad, no matter the intentions...
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