# Menu_07_Feb_11 - C Quantity restrictions(so some will be...

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TODAY’S MENU: Monday 07 February 2011 I. BUSINESS A . Practice Problems 1. Chapter 5: 1-5, 9, 11, 14 2. Chapter 7: 1-4, 7, 8, 11-17, 20, 24, 25 B. First Exam: One week from today II. SUBSTANCE A. The Method reviewed 1. Who is directly affected? 2. How does behavior change? 3. What is the result? B. Price controls (in quantity restrictions—government composed/social OR other composed) 1. Price ceiling - maximum allowable price which is not legally socially acceptable - anti-gouging laws—natural disaster/emergencies a. Binding (i.e., effective) -when the ceiling price is below the market equilibrium b. Non-binding (i.e., ineffective) - when the ceiling is equal to or above the market equilibrium c. Examples - shortage 2. Price floor - minimum price below which is not allowable to change - minimum wage a. Binding (i.e., effective) b. Non-binding (i.e., ineffective) c. Examples BINDING changes, has an effect NON-BINDING has no effect, doesn’t change a thing

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Unformatted text preview: C. Quantity restrictions (so some will be left for the following year) -restriction on the quantity that can be sold-MAXIMUM allowable -looks like binding price floor -maximum allowed in a store, etc.-hunting 1. Binding (i.e., effective) 2. Non-binding (i.e., ineffective) 3. Examples D. Elasticity (CHAPTER 6)-in understanding how to run a business-predict how customers reaction will change depending on how prices change -problem is how customer will react 1. Motivation 2. ***Price elasticity of demand a. Definition-elasticity= sensitivity, responsiveness, changeable -sensitive to price= change a lot b. Measure i. Elastic ii. Inelastic iii. Unit elastic c. Determinants i. Number and availability of substitutes ii. Necessity or luxury iii. Proportion of budget spent on good iv. Time III. NEXT TIME A. Finish Chapter 7: “Describing Supply and Demand: Elasticities”...
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Menu_07_Feb_11 - C Quantity restrictions(so some will be...

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