ec-13 - i. Qd = Qs ii. Incentive to rebuild d. Price...

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Support P Price Floor 10/14/2008 I. Price elasticity of supply a. Def: (% ∆ Qs)/ (% ∆ P) i. How supply responds to a change in price b. Es > 1 i. Elastic c. Es < 1 i. inelastic II. Special cases of Es a. Perfectly inelastic S (vertical line) i. Ex: 1. ( maybe) parking spaces in atwater garage b. Perfectly elastic S (horizontal line) i. Ex: 1. Beer at nick’s on a given night III. Government Policies (Overview) a. Price Ceilings b. Price Floors c. Taxes IV.Price Ceilings a. Other consequences
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i. ↓ Maintenance ii. ↓ Quality iii. ↓ availability overtime iv. Rentals → condos v. Abandonment b. Are rent controls good policy i. Normative 1. But economic analysis can inform our judgements c. Shortage is a price phenomenon i. Not a physical lack ii. Ex: 1. 1906 earthquake in SF a. Over half housing stock destroyed b. 200,000 left homeless i. 75,000 moved away ii. 30,000 temp shelters iii. Other 95,000? 1. Absorbed into existing market how? a. Rental prices rose
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Unformatted text preview: i. Qd = Qs ii. Incentive to rebuild d. Price Shortages cause shortages i. Other examples 1. Mexican milk 2. Bread 3. Oil before 1983 V. Price floor a. Legal minimum price i. Ex: 1. Agriculture price supports a. Corn, rice, tobacco etc. pretty much every commodity b. Government guarantees to buy at the support price Market for peanuts ii. Effects 1. Qs&gt;Qd a. Surplus! b. Note: surplus is price phenomenon not an abundance 2. Government must store/ dispose of surplus 3. Some years government bought 25% of all wheat produced iii. Response? 1. Attempts to S a. Acreage limits i. soil banks ii. Saving Natural resource for future generation b. Quotas i. Government enforced cartel 2. Tech progress S iv. Price floors Cause surpluses 1. Other examples a. Minimum wage laws b. Air fares (until 1980) c....
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ec-13 - i. Qd = Qs ii. Incentive to rebuild d. Price...

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