SECTION IV OUTLINE

SECTION IV OUTLINE - I. SECTION IV MARKET FORCES a. Changes...

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I. SECTION IV – MARKET FORCES a. Changes in Demand b. Changes in Supply c. Prices as Information i. The fact that the actual cause of price increases are invisible are both a strength and a weakness 1. It is a strength because it only transmits the really crucial information 2. It is a weakness because sometimes economic transactions are incorrectly understood ii. Production costs are relevant to the market price only insofar as they affect the quantity supplied d. The Competition for Rental Housing i. The higher the price of rental housing results from nothing more than increased competition of students for housing space occupied by others ii. Landlords merely facilitate this competition e. Excise Taxes i. The effect of a $1 per pack excise tax is to shift the supply curve upward the full $1 ii. The consumer’s burden of the tax is the difference between what they pay before and after the tax iii. The producer’s burden is the difference in what they receive before and after the tax iv. The two cases in which consumers pay the entire $1 occur when the demand curve is vertical and when the supply curve is horizontal 1. When the demand curve is vertical it means they will pay any price for the product 2. When the supply curve is horizontal it means that the suppliers insist upon that price for supplying any output whatsoever a. If the buyers wish to buy anything, they will have to accommodate to that price f. Subsidies i. If the government offered a subsidy, you would still want the same amount but insist upon less because the subsidy pays the rest ii. There are two cases in which the subsidy causes the price to fall the entire amount
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This note was uploaded on 04/10/2008 for the course ECON 1 taught by Professor Bergstrom during the Fall '07 term at UCSB.

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SECTION IV OUTLINE - I. SECTION IV MARKET FORCES a. Changes...

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