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Unformatted text preview: ice cream manufacturers that they shouldn’t produce as
much fat-free ice cream.
A famous economist once said
that if “supply and demand” or “the
market” didn’t naturally exist, it
would have to be invented—and
then it would be hailed as the greatest invention the world had ever
seen. Of course, the market was not
invented, it just is.
Who feeds Cleveland, New York,
Chicago, New Orleans, London,
Buenos Aires, and Paris?
And who feeds you?
ABOUT IT If the market had been
invented, how would it
compare to inventions such as the
wheel and fire? the country, the price is zero; most freeways
do not have tolls.1 In Exhibit 6-7(a), you will
notice that zero price is the equilibrium
price at 11 p.m. on Monday. The demand
curve for freeway space and the supply curve
of freeway space intersect at zero price at
People do pay taxes to build freeways, but this fact is not relevant here. People are not paying a price to drive on freeways,
at least not nontoll freeways. 06 (128-153) EMC Chap 06 11/21/05 3:14 PM Page 145 11 p.m. on Monday. In other words, at this
time neither a shortage nor a surplus of freeway space exists. People are using the freeway. Traffic is moving freely without
Now look at the situation at 8 a.m. At zero
price—no toll—the quantity demanded of
freeway space is greater than the quantity
supplied, resulting in a shortage of freeway
space. In everyday language, the freeway is
congested. If you have ever been in a major
traffic jam, you can probably understand that
a congested freeway means a shortage of
What is the solution to freeway congestion? Two common solutions are building
more freeways and having people carpool.
One solution deals with the supply side of
the freeway market, and the other with the
demand side. When people say that we
ought to build more freeways, they want to
push the supply curve (of freeway space) to
the right, shown in Exhibit 6-7(b). If the
supply of freeway space shifts from S1 to S2,
freeway space is able...
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This document was uploaded on 01/16/2014.
- Winter '14