Competitive Market both firms and consumers are price takers No one can determine the price Price is determine by the market and individuals take the price as determined by the market Price taker They must accept the price that is set by the market sellers cannot charge a higher price buyers cannot negotiate a lower price independent variable price dependent variable quantitysuppled quantitydemanded Price ceiling a legal maximum on the price of a good or service Price controls ex rent control Rent control in New York Shortage Suppliers have no incentive to maintain units Suppliers resort to non price rationing mechanisms Renters stat in rent controlled units inertia cid 127 When OPEC implemented an embargo on exporting oil The supply of oil in the US fell The price went up drastically SO the US government put price controls on gas a price ceiling results in long lines and Odd eve days Price Floors a legal minimum on the price of a good or service a price floor below the eq price is not binding it has no effect on the outcome of the market The floor is a binding constraint on the wage causes a surplus more supply than demand i e unemployment labor surplus See powerpoint Week 3 for arguments on minimum wage Efficiency Wage Theory The belief that paying a higher wage benefits firms Henry Ford Costco opinions Normative statement claims how the world should be Positive statement observations about how the world is Equity distributing resources fairly among members of society Normative statements idea that people should have access to normal goods Efficiency getting the most from society s resources Farmers respond to this incentive and produce too much of this good Both Price Ceilings and Price Floors make incentives that result in inefficiencies Agricultural price floors on Wheat Cotton Corn Surplus of materials Prices as a rationing system impersonal Efficient Fair cid 127 Who gets access depends upon ability and willingness to pay cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127
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