Lecture%206%20February%207

Lecture%206%20February%207 - Todays Agenda More on Pareto...

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Today’s Agenda More on Pareto efficiency Price ceilings and floors Or, how rent control can cause housing shortages abandoned apartment buildings racial discrimination Black markets
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Aplia grace period ends at midnight tonight If you have not paid by then, you will be unable to see or submit homework you will lose access to the digital version of the textbook
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Aplia grace period ends at midnight tonight If you have not paid by then, you will be unable to see or submit homework you will lose access to the digital version of the textbook
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A price floor of $30 implemented in this market results in: 60 140 10 70 110 30 80 80 50 90 50 70 100 20 90 Q S Q D P A. A shortage of 40 units. B. A surplus of 40 units. C. No effect, since the floor is above the equilibrium price. D. No effect, since the floor is below the equilibrium price.
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Fundamental theorem of welfare economics Adam Smith Wealth of Nations The allocation of resources generated by a complete system of perfectly competitive markets is Pareto efficient.
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Arguments against market allocation Distributional or equity failures Efficiency failures
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Efficiency failures Monopoly power Externalities Collective consumption goods Information asymmetries MB social = MB private = P = MC private = MC social
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Price floors price floor : a minimum legal price examples minimum wage minimum prices for agricultural commodities Price floors only matter if minimum P > equilibrium P
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Q $/Q S D P* Q* Price floors
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Q $/Q S D Q D (P min ) Q S (P min ) P min surplus Price floors
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Q $/Q S D Q D (P min ) P min Price floors
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Results of effective price floors Surplus Quantity traded < equilibrium quantity Rationing by buyers Discrimination becomes easier in labor markets
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Price ceilings price ceiling : a maximum legal price examples wartime price controls rent controls administered-price markets in centrally planned economies Price ceilings only matter if maximum P < equilibrium P
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Q $/Q S D P* Q* Price ceilings
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Q $/Q S D Q S (P max ) Q D (P max ) P max shortage Price ceilings
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Q $/Q S D Q S (P max ) P max Price ceilings
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This note was uploaded on 03/08/2011 for the course ECON 220 taught by Professor Cai during the Spring '08 term at Rutgers.

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Lecture%206%20February%207 - Todays Agenda More on Pareto...

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