Lecturenotes4to6

Lecturenotes4to6 - Econ 1 UCLA Dr. Narag Lecture 4, 5, and...

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Econ 1 UCLA Dr. Narag Lecture 4, 5, and 6 I will be posting the notes in word format for those of you that like to take notes on your laptop in class. Price Controls -- One form of government intervention in markets. There are two types of price controls, P C . 1) Price Ceilings -- For an effective price ceiling to work, it is set so that the market price will not rise above P C . Results: Misallocation of resources = too little is produced. Graph Price Ceiling vs Market Equilibrium (Ex. Rent control) P S Shortage D Q s Q d Q 2) Price Floor -- For an effective price floor to work, it is set so that the market price will not fall below P C . Results: Misallocation of resources = too much is produced. Price Ceiling
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Econ 1 Lecture 4, 5, and 6 Dr. Narag Graph Price Floor vs Market Equilibrium (Ex. Agricultural price supports) P S Surplus D Q d Q s Q Price Elasticity – measures the responsiveness of the % change in quantity demanded (Q D ) (or quantity supplied (Q S )) relative to a % change in price (P), of the same good. If both supply and demand change, then we can be certain of a change in either the equilibrium quantity or price, but the direction of change in one of the two will be uncertain unless we have more information. The resulting equilibrium will depend on the amount of the shifts and the amounts Q d and Q s change as price changes. The measure of these changes is called “elasticity”. Interpretation of Price Elasticity Coefficients The use of percentage changes enables us to compare the consumer (or producer) responsiveness to changes in the prices of different products. The absolute value of the percentage change allows us to determine how elastic the consumer (or producer) responsiveness is relative to the change in price. Note : Price elasticities of demand will have a minus sign prior to conversion to absolute value because of the inverse relationship between quantity demanded and price. Price elasticities of supply will always be positive due to the direct relationship between quantity supplied and price. Economists sometimes avoid use of the minus sign by giving the price elasticity of demand as E D . Similarly the price elasticity of supply would be
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This note was uploaded on 03/20/2008 for the course ECON 1 taught by Professor Nagata during the Fall '08 term at UCLA.

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Lecturenotes4to6 - Econ 1 UCLA Dr. Narag Lecture 4, 5, and...

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