Lectureslides5

Lectureslides5 - 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D....

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Unformatted text preview: 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D. LECTURE 5 Main points 2 types of govt intervention: Price and quantity controls Effects of govt. interventions: Excise tax; similar effect as a quantity control Elasticity LECTURE 5 Government Intervention in a Competitive Markets: Price and Quantity Controls Price controls: price ceiling and price floor Price ceiling: upper bound Price floor: lower bound Quantity controls: quota limits; licenses LECTURE 5 Price Ceilings Effective vs. ineffective price ceilings Effective: Misallocation of resources; too little is produced (Shortage) Ineffective: When it is set above the equilibrium price level; not binding LECTURE 5 Unregulated Market: Equilibrium at E LECTURE 5 Government Imposes Price Ceiling 2 LECTURE 5 Results of Price Ceiling Persistent shortage Inefficient allocation of resources Emergence of a black market LECTURE 5 Price Floor Effective vs. ineffective price floors Effective: Misallocation of resources; too much is produced (surplus) Ineffective: When it is set below the equilibrium price level; not binding LECTURE 5 Price Floor LECTURE 5 Government Intervention in a Competitive Markets: Quantity Controls Quota limits; licenses Set an upper bound Ineffective when set above the equilibrium quantity LECTURE 5 Point A to Point B: Wedge/Quota Rent LECTURE 5 Quantity Controls Drives a wedge between demand price and supply price When limit < equilibrium quantity in an unregulated market: demand price > supply price 2 LECTURE 5 Results of Price Ceiling Persistent shortage Inefficient allocation of resources Emergence of a black market LECTURE 5 Price Floor Effective vs. ineffective price floors Effective: Misallocation of resources; too much is produced (surplus) Ineffective: When it is set below the equilibrium price level; not binding LECTURE 5 Price Floor LECTURE 5 Government Intervention in a Competitive Markets: Quantity Controls Quota limits; licenses Set an upper bound Ineffective when set above the equilibrium...
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Lectureslides5 - 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D....

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