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Econ1-Fall2010-03b-DemSupply-handout - Readings Economics1...

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Economics 1 Principles of Microeconomics 3. Demand & Supply (B) Fall 2010 Herb Newhouse 1 Readings Ch 3: Supply and Demand (p 68 – 87) Ch 3: Supply and Demand (p 68 87) Market Equilibrium Predicting and Explaining Changes in Prices and Quantities Efficiency and Equilibrium 2 Outline Market Equilibrium Market Equilibrium. Price Ceilings and Price Floors. Shif i h ilib i i d Q i Shifts in the Equilibrium Price and Quantity. Efficiency and Equilibrium. Algebraic Example. 3 Market Not in Equilibrium P S P H D Q At P H , . There is a surplus of the good. 4
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Market Not in Equilibrium P S P L D Q At P L , . There is a shortage of the good. 5 Market Equilibrium P S P * D Q Q * At P *, Q D = Q S = Q *. The market is in equilibrium. 6 Price Ceilings and Rent Controls Price ceiling : a maximum allowable price specified by law. Rent controls are a type of price ceiling. Above Eqm Price Below Eqm Price P S P S $1000 $1000 D D Q Q Q * Q * 7 Negative Implications of Rent Controls Long waiting lists for apartments and increased search activity. Under the table bribes and black market rents. Quality of housing deteriorates. Allows landlords to discriminate on basis of race, religion, age, etc. All of these are symptoms of inefficiency.
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