Attracted by the weather many people move or consider moving to San Diego which

Attracted by the weather many people move or consider

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Attracted by the weather, many people move or consider moving to San Diego, which increases demand for and equilibrium price of housing there. Therefore, to enjoy the unpriced weather in San Diego, one has to pay an increased price for housing. This extra housing price is then the indirect cost of consuming the good weather.XI.APPLICATION 11: PAYING ALL PROFESSORS THE SAME SALARY—If all disciplines of professor are paid the same wage, then supply and demand tell us there will be surpluses and shortages. Each discipline has its own supply of and demand for professors. Suppose that the equilibrium wage of accounting professors is higher than the market equilibrium wage for history professors. Then if all professors are paid the accounting equilibrium wage, there will be a surplus in the history market (see Exhibit 7). Having this surplus is potentially harmful to students, because the excess wage paid to history professors could be used to hire more professors. Therefore, paying the uniformly higher wage causes colleges to have larger classes that could be reduced by hiring those extra professors.XII.APPLICATION 12: ARE NEW CAR COMPANIES HURT BY THE USED CAR MARKET?—New cars and used cars are generally considered to be substitutes. This means that the market for new cars should be impacted by market conditions for used cars. If the used car market did not exist, all car buyers would be forced into the new car market, and therefore the demand for new cars would be higher. However, new cars are also assets to their owners that can be resold. If this were not possible, then consumers would alter their valuation of their new car. Consumers could answer the question of their maximum buying pricefor a new car if they can resell it later and if they cannot. The price assuming resale should be higher than the price assuming no resale. Thus the existence of resale possibilities implies higher demand (greater number of buyers at every possible price) for new cars, and therefore higher prices. There are two factors that affect the demand for new cars: (1) the used car market lowers demand for new cars by taking away some potential buyers and (2) the used car market raises the demand for new cars by providing resale opportunities that new car buyers include in their willingness to pay for a new car. Economists cannot determine which effect is stronger, but among the possibilities is that they cancel each other out and the new car market is the same with the used car market as it is without it.XIII.APPLICATION 13: SUPPLY AND DEMAND ON A FREEWAY—Supply and demand applies to the traffic on a freeway. The supply of available freeway space is fixed and does not vary at any instant in time. However, the demand for driving does fluctuate as people need to move around. For example, it would be higher at rush hour than at 2 A.

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