Lecture 8 - Announcements • We will be doing an...

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Unformatted text preview: Announcements • We will be doing an experiment in Aplia on Friday – bring your laptops. • The experiment itself will not be graded so if you do not have a laptop, don’t worry – just follow along with someone else. • For the 10:10 class- the experiment is limited to 500 participants. I f you are unlucky enough to not get in, just follow along with a neighbor. • Do both “Preparing for Experiment” assignments on Aplia by 8:45am on 1 of 23 iClicker I f the supply curve shifts back (supply decreases) and the demand curve shifts back (demand decreases), then what happens to the equilibrium quantity of the good? A. Nothing B. Can’t tell (could rise or fall) C. Rises D. Falls 2 of 23 EXCESS DEMAND (Shortage). 3 of 23 4 of 23 THE PRICE SYSTEM: RATIONING AND ALLOCATING RESOURCES price rationing The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied. THE PRI CE SYSTEM: RATI ONI NG AND ALLOCATI NG RESOURCES • The adjustment of price is the rationing mechanism in free markets. Price rationing means that whenever there is a need to ration a good (when a shortage exists) in a free market, the price of the good will rise until quantity supplied equals quantity demanded (until the market clears). 5 of 23 Lumber • Lumber Example from last time. D out and S back made prices increase a lot. • Not good for the economy to have prices change so much. • What can the government do? 6 of 46 P Q S 1972 D 197 2 A B S 1970 D 197 $26.70 $56.76 Lumber Example • The government could try to shift the curves back to where they were before and let the market adjust on its own (move back to a point near the old equilibrium). 1.To shift demand back , the government could increase taxes on new housing projects or put limits or taxes on exports of lumber. 2.To shift supply out , the government could lower tariffs (taxes on imports) or get rid of quotas (limits on imports) on lumber from Canada. 7 of 23 Lumber (continued) • OR, the government could just put a limit on how much people can charge for lumber. This is called a “price ceiling”. • I f they do this, there will be a shortage of lumber and the lumber must be rationed somehow (or divided up among the people that want the lumber)....
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This note was uploaded on 06/21/2009 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Lecture 8 - Announcements • We will be doing an...

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