ECON 221 Lecture 7 Outline of Last Lecture I. EfficiencyII. Willingness to PayIII. Consumer SurplusIV. Producer SurplusOutline of Current Lecture I. Efficiency remindersII. Government interventionIII. WagesIV. Price Control Current LectureEfficiency reminders 1. Equilibrium outcomes not necessarily efficientA. In markets where my actions impact people not involved in the transaction, equilibrium is not efficient2. Efficient outcomes are only good in the sense that they avoid waste... Not necessarily "fair"3. Markets have the most efficient outcomes when left alone4. Government interventionA. A few ways the gov. could get involveda. Taxes/subsidies b. Price restrictions (setting max or min price)c. Quantity restrictions (setting a max or min quantity) 1. Ex. Taxis in NY, many health related industries, nursing homes... Etc.5. Economics of minimum wagesA. Federal minimum wage $7.25These 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.a. 21 states have higher minimum wagesb. Washington state - $9.32B. Past year: to push dramatically increase wage a. Obama increased minimum wage to $10.10 for federal workers and contractors C. Part of the pressure comes from the fact that value of minimum wage (accounting for inflation) is lower than it used to be.a. Real minimum wage decreasing b. Nominal minimum wage increasing D. What impact would an increase in minimum wage have? a. Possible reduction in employmentb. Possible generation of inefficiency E. We've seen that markets lead to efficient outcome, allocate goods to those who want them mostF. Price controlsa. Price ceiling: gov. sets a maximum price for a good1. Ex. Rent control2. Leads to decrease in total surplusA. Total surplus was our measure of how well off all market participants are B. Call loss in total surplus “deadweight loss”a. Loss in total surplus that occurs when an action or policy reducesthe quantity transactedb. "Missed opportunities for transactions that people would like to make" c. Price ceilings cause inefficiency d. Inefficient allocations to consumers1. Shortage of goods - no guarantee that people who value thegood the most will be able to obtain ite. Wasted resources1. People waste time searching for a goodf. Low quality b. Price floor: gov. sets a minimum price for a good1. Ex. Minimum wage 2. Price floors operate similarly but the gov. sets a minimum price 3. Start by translating labor into market settingA. Workers supply labor, firms demand labor - price of labor is the wageB. Minimum wage sets a minimum for this price C. Price floors make society as a whole worse off D. So did price floor help workers?a. Generates unemployment b. But as a whole, yes. G. Thus whether price controls are good or bad is a value judgement H. Empirical research in economics - the goal is to find the causal relationships between