14 Friday, September 29, 2006

14 Friday, September 29, 2006 - = people arrive early and...

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Friday, September 29, 2006 Microeconomics Ex. 4 COMPUTERS P S1 S2 * Advance in technology P*0 * Increase in consumer income P*1 (computers are normal goods) D2 D1 Q*0 Q*1 Q P S1 S2 P*1 * Equilibrium Definitely increases P*0 * Change in price is Ambiguous D2 D1 Q*0 Q*1 Q ADAM SMITH = 1776 = “Wealth of Nations” In Book he said the Economy was guided by an “Invisible Hand” Prices adjust so the buyers eventually end up buying exactly what producers want to produce This Happens w/out Government Intervention
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Friday, September 29, 2006 IMPEDIMENTS TO MARKET OUTCOMES Price ceiling = maximum – legal price that can be charged for a good Price Floor = minimum – legal price that can be charged for a good P S Pc1 Price Ceiling = Non-Binding (No effect) * A price ceiling above the Equ. Price is non-binging P*0 Pc2 Price Ceiling = binding (permanent shortage) * With a binding price ceiling quantity demanded exceeds quantity supplied. In this case some mechanism for Q*0 Q rationing will develop.
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Unformatted text preview: = people arrive early and wait in long lines = sellers rational good based on personal biases GASOLINE 1973 P S2 S1 P*2 Pc Price Ceiling P*0 * Because OPEC raised the price of Crude oil, the supply of crude shifts * Price ceiling is now binding and a shortage of gasoline is the consequence D1 Q*0 Q HOUSING Friday, September 29, 2006 P S * Apartment are rationed A # of ways including long waiting lists, land lords may give preference to tenants hat are willing to pay under the table. P*0 * Landlords have no incentive to maintain the property when they have people that are waiting to get in. Pc Price Ceiling D Q*0 Q PRICE FLOORS P S Pf2 Price Floor = With a binding price floor, a surplus will develop, so some producers cant sell all that they want P*0 Pf Price Floor = binding (permanent shortage) D * Buyers will have certain bases that will lead them to buy form particular sellers Q*0 Q...
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This note was uploaded on 03/20/2008 for the course EC 201 taught by Professor Xasdf during the Fall '08 term at N.C. State.

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14 Friday, September 29, 2006 - = people arrive early and...

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