EC 201 9-15-08 - < Q o Price ceiling either No effect if...

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EC 201 9-15-08 Optional review here Wed. 9-24 8:30-10:30 pm Regular exam time Friday 9-26 103 Erikson (kiva) o Alternate time Thurs. 9-25 4:30 pm C104 Wells o Tues. 9-30 4:30 pm B106 Wells Email to [email protected] Name ID Reason Time o No office hours Thurs. 9-18 Price controls Price ceiling – max. price P > ceiling is illegal Price floor – min. price P < floor is illegal Had price ceilings on gasoline until 1980s January 1979: equil. < ceiling Eqil. Price < ceiling price had no effect because equilibrium is equal Then P oil ↑↑ o → S gasoline to left o → P gasoline equil. ↑ P * may and Q * may would have occurred if not for the law o But we had price ceiling Q d > Q s : shortage: some stations run out →buyers uncertain →long lines at gasoline pump Billion gallons burned waiting in line Q s ceiling is actually bought and sold
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Unformatted text preview: < Q* o Price ceiling either: No effect if ceiling > equilibrium Q ↓ if ceiling < equilibrium • Minimum wage law o Price floor in labor market o If equilibrium price (where wage) > floor price (here, min. wage) o No direct effect o But what if min. wage is > equil. Wage? (low-skill labor) o Equil. Wage is against law o If law enforced, surplus = unemployment o Tradeoff: some will lose job, some will keep job and earn more • Depends on responsiveness of employers to higher wages • International trade o Foundation is comparative advantage o (same for intra national trade) o Often o Specialize in comp. adv. o Trade o Can make whole world economy more productive o If your country can produce more cheaply (comp. adv.) o (your price < world price) o If a different country can produce more cheaply, import...
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.

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EC 201 9-15-08 - < Q o Price ceiling either No effect if...

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