ECON 142 1st Edition Lecture 5Outline of Last Lecture I. Inverse Supply and Demand FunctionII. EquilibriumIII. Price CeilingsOutline of Current Lecture II. Applying Price CeilingsIII. Applying Price FloorsCurrent LectureReminder: Exam 1 is February 9th Using Supply and Demand*Government intervention in the marketmost markets, demand/supply set the pricesometimes the government steps in and affects the pricePrice Ceiling:government cap on how much money an object can be supplied for pg 112Price Floor: government level of which a product has to be aboveleads to surplus > more being supplied than being demanded pg 110)a price floor below the equilibrium price does nothing to distort the market- Real world example of price floors- government-mandated prices for commodities like sugar and corn- and…- MINIMUM WAGE- If a price floor is imposed of $27, what is the Q demanded, what is the Q supplied, what is the surplus or shortageP=33-2*Q27=33-2*Q2Q=33-27Q = 3P=12+1.5Q27=12+1.5QThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1.5Q=27-12 Q=10Surplus = 7 (3-10)Price ceiling of $15P=33-2Qq = 9 (price demanded)P=12+1.5Qq=2 (price supplied)shortage = 7(9-2)Pg 108 *Pay attention to increments on exam- Imposing a Tax- Shift supply curve UP- Tax imposed on the seller. Everytime he sells one of these he has to hand over $5.00 (shifts supply curve up by $5)- So applying a tax is like shifting the supply curve up by the amount of the tax.- Supply curve shifted up, demand curve did not move, what does that mean?- we are going to have a new price and quantity in the market- Pg 117- Three Points to pay attention:- old equilibrium, after we add the tax there is a new equilibrium; however thats not what the seller gets, that’s what the customer pays.- e.g. customer is pay $8 dollars rather than $5 but the seller is going to receive $3- Sample Problem #2- Consider the following supply and demand curve- Original: P = 10+2.3Q and P=34-2Q- Apply a tax shift UP by amount of tax $8 Tax?- P=18+2/3Q and P = 34-2QThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- So- 18+2/3Q = 34-2Q and- 2.67Q = 16 so- Q=6- Q=, then P=22- The price the consumer pays is 22.- The tax is $8…- The price the producer receives is $14These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.