{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

6 Econ Class notes - Ch 6 Supply Demand and Gov't Policies...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Ch. 6: Supply, Demand, and Gov’t Policies a. Law of supply and Demand states a. Prices will adjust so that QS=QD (the most efficient allocation) i. Free markets ii. Full information iii. No externalities iv. No market power b. If the government participates in the market, we say the market is not free a. Government can i. Control prices ii. Tax I. Price controls----------- Are bad a. Price ceilings i. The legal maximum in which a good can be sold b. Price floor i. The legal minimum in which a good can be sold c. Effects of price ceiling i. If price ceiling is above equilibrium, it is not binding 1. Pe and Qe do not change ii. What if price ceiling is below equilibrium? 1. Here, it is binding 2. A binding price ceiling will lead to a shortage 3. with the shortage, the market must develop a rationing system a. First come, first serve (line)------Most common b. Lottery c. Friends, family d. Discrimination e. Black market f. Scalpers d. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
II. Case Study: Lines at the Gas Pump a. In 1973 OPEC raised its price on crude oil i. 2 b. Government places a price ceiling at the equilibrium c.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}