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Lecture4_supplydemandgovt

Lecture4_supplydemandgovt - Econ 401:Principles of Macro...

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Econ 401:Principles of Macro Lecture 4 Supply, Demand, and Government Policies
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What You Will Lean and Why? Why does the government intervene in markets? What are the common tools of government intervention? What happens when the government intervenes?
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Supply, Demand, and Government Policies In a free, unregulated market system, market forces establish equilibrium prices and exchange quantities. While equilibrium conditions may be efficient, it may be true that not everyone is satisfied. One of the roles of economists is to use their theories to assist in the development of policies.
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Price Controls Are usually enacted when policymakers believe the market price is unfair to buyers or sellers. Result in government-created price ceilings and floors. Price Ceiling – A legal maximum on the price at which a good can be sold. Price Floor – A legal minimum on the price at which a good can be sold.
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Legally imposed constraints on prices –Price ceilings • Legal maximum • Price – below it –Price floors • Legal minimum • Price – above it 5
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