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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Lecture4_supplydemandgovt - Econ 401:Principles of Macro...

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