Comm 295 - Class 2 Notes - Comm 295 Supply and Demand,...

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Comm 295 Supply and Demand, Elasticity (2.5, 3.1) SUPPLY AND DEMAND 2.5 EFFECTS OF GOVERNMENT INTERVENTION Policies that Shift Curves - Governments limit who can buy goods – decreases quantity demanded and shifts demand curves to the left o Eg age limit, licensing, quotas Price Controls - Government policies that control price may alter market outcome even though do not affect demand/supply of good Price Ceiling - Occurs when government sets a price ceiling BELOW the unregulated equilibrium price o Eg equilibrium price of gas would be $4, price ceiling of $3 - Result is excess demand, or a shortage of the good as Qd>Qs Shortage : a persistent excess demand - Binding price ceiling predicted to result in an equilibrium with a shortage o Quantity demand ≠ quantity supplied o Called an equilibrium because consumers and suppliers don’t want to change behaviour due to the law Price Floors - Occurs when government sets a price floor ABOVE the unregulated equilibrium price o Eg minimum wage - Result is excess supply, or too much of a good as Qd<Qs Why Supply Need Not Equal Demand - Price ceilings and price floors where quantity supplied ≠ quantity demanded o The quantity buyers/sells want to buy/sell need not equal to the ACTUAL quantity bought/sold o If quantity supplied/demanded meant the ACTUAL quantity wanted by suppliers/consumers, then supply MUST equal demand in all markets because the quantity demanded/supplied are defined to be the same o Because quantity demanded/supplied refers to the quantity WANTED by market participants, “supply equals demand” is a theory Where price and quantity in a market are determined by the intersection of the supply and demand curves and the market clears at equilibrium IF GOVERNMENT DOES NOT INTERVENE! Sales Taxes
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This note was uploaded on 12/07/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at The University of British Columbia.

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Comm 295 - Class 2 Notes - Comm 295 Supply and Demand,...

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