exam 2 review - Study materials: weeks 5-7, 8-10 (part 1);...

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Unformatted text preview: Study materials: weeks 5-7, 8-10 (part 1); online+homework • When price controls are put in place by government, market price no longer allocates resources - Now u s e o t h e r alloc a tio n m e c h a ni s m s , w hic h c a n di s cri min a t e a g ai n s t t e n a n t s / c o n s u • Wh e n p ric e floor is im p o s e d in la b or m a rk e t, w e h a v e a d e cr e a s e in q u a n tity d e m a n d ( m ov e m e n t al o n g c e r t ai n d e m a n d c u rv e, c u rv e d o e s n o t s hift) o • No s hift s w h e n a p ric e c eilin g or floor is im p o s e d in m a rk e t If fir m s d o n o t r e s p o n d b y m u c h , t h e bi n di n g p ric e floor ( mini m u m w a g e ) allow s all w ork e r s w h o ke e p t h eir jo b s t o b e m a ki n g m o r e; fir m s = r e s p o n siv e, t h e y c u t b a c k t h e d e m a n d for w ork e r s a n d work er s a r e h u r t b y mi ni m u m w a g e o A bi n din g pric e floor r e d u c e s t h e q u a n tity d e m a n d e d o Tho s e individ u al s w h o work m a k e m o r e , h o w e v e r m o r e work er s will los e job s o If fir m s a r e n o t v e r y r e s p o n siv e t o w a g e c h a n g e s t h e n w ork e r s will h a v e m o r e m o n a n d p o v e r t y will d e cr e a s e • La bor s u p ply: r e pr e s e n t e d b y w ork er s • La bor d e m a n d: r e pr e s e n t e d b y e m ploy e r s • If fir m s a r e n o t v e r y r e s p o n siv e t o w a g e c h a n g e s , work er s will b e b e t t e r off • It is im p o s si bl e t o d e t e r mi n e if work er s a r e b e t t e r or wor s e off, if w e d o n’t k n o w h o w r e s p o n siv e fir m s a r e • Pro d u ci n g insid e its PPF = look for s o m e t hi n g t h a t y o u a r e n o t pr o d u cin g a t effici e n t w o Not u sin g a t le a s t o n e of y o ur r e s o ur c e s effici e n tly ( ex. Lab or in p u t n o t p u t t o its m o s t effici e n t u s e , w ork e r s a r e n o t d oi n g w h a t t h e y wo uld b e m o s t pr o d u c tiv e d oi • A c ur v e d p pf = s h o w s o p p o r t u nity c o s t t h a t is n o t c o n s t a n t; s tr ai g h t lin e p pf = pr o d u c e c o n s t a n t o p p or t u nity c o s t ( alw a y s t h e s a m e ) • Incr e a si n g o p p or t u nity c o s t s h o w s t h a t r e s o urc e s a r e n o t id e n tic al in pr o d u c tio n; c o n s o p p or t u nity c o s t r e pr e s e n t s r e s o urc e s id e n tic al in p r o d u c tio n • To d e t e r mi n e c o m p a r a tiv e a d v a n t a g e , m u s t b e a bl e t o id e n tify o p p o r t u nity c o s t s • Wh e n t w o c o u n tri e s, or in divid u al s, tr a d e wit h e a c h o t h e r t h e in divid u al s g ai n s a r e m e a s ur e d b y ke e pi n g r e s o urc e s id e n tic al. (?) • Co u n t ri e s e n g a gi n g in fr e e tr a d e a r e a bl e t o s hift o u t t h eir c o n s u m p tio n p o s si biliti e s c • ...
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