Applications of Demand and SupplyMarshall …供给和需求的应用马歇尔….docVIP

Applications of Demand and Supply Price Controls Price Ceiling Price Floors II.????????Price Elasticity of Demand A. What is it? - How To Find It? - Example ? B.???? ED Varies by slope - Extremes C.??? ED varies by location on Demand Line Examples Price Controls – When government intervenes in a market to fix price above or below equilibrium. 2 types of price controls: 1. Price ceilings 2. Price floors Price ceiling Note: ceiling don’t allow anything above them. Government maintains price below equilibrium. A legally established maximum price a seller can charge for a product. Ex: Rent controls in NYC, DC, LA, Boston San Francisco An essential product (Ex: A place to live) that would be unaffordable to the common person at the equilibrium price. Ex: 1971 President Nixon froze all wages, prices rent for 90 day s in an effort to curb inflation However, in the last lecture we learned: If price below equilibrium = shortage Graph Effects of price ceiling: Because of shortage consumers spend more time searching for a product. Black market illegal activity can arise Ex: Rent apartment at $500. Illegally sublet at $600. Note: If price ceiling is at or above equilibrium = no effect. Price Floors: Note: Floors keep things from going below them. - A legally established minimum price that a seller can be paid (above equilibrium.) Ex: The minimum wage. In the labor market: Seller (supplier) = workers offering their labor Buyer (demander) = employers The price that labor is paid is the wage (W) Does the law of demand work for labor? Sure. Employer’s point of view: ↑W = ↓ QD of worker by employers Does the Law of Supply work for labor? Sure. From potential employee point of view: ↑W = ↑ QS (of worker willing to work) However, in the last lecture we learned: If price above equilibrium = surplus Graph QS QD: at that high wage, people want to work. However, their skill level may not warrant $5.15 in the market. Elasticity of Demand Recall: Law Of De