Non Binding Price celling

Effects of price ceilings

persistent shortage of the good/inefficiently low quantity produced
Inefficient allocation of the good to consumers,
resources wasted in searching for the good
inefficiently low quality of the good offered for sale
the emergence of illegal, black market activity
a persistent surplus of the good/inefficiently low quantity consumed
inefficient allocation of sales among sellers
wasted resources
an inefficiently high level of quality offered by suppliers
the temptation to engage in illegal activity, particularly bribery and corruption of
government official
a. What are the equilibrium wage and quantity of workers in
this market?
b. For it to be effective, where would the government have to
set a minimum wage?
c. If the government set a minimum wage at $8 per our
i. how many workers would supply their labor?
ii. how many workers would be hired?
iii. how many workers would want to work that did not want to
work for the equilibrium wage?
iv. how many previously employed workers would no longer
have a job?
The Wedge=Quota Rent

supply price of a given quantity is the price at

which producers will supply that quantity.
Suppose that the quota is 8 million rides and that demand decreases
due to a decline in tourism. Show on your graph the smallest parallel
leftward shift in demand that would result in the quota no longer
having an effect on the market.
5. Which of the following would decrease the effect of a quota on a market? A(n)
a. decrease in demand
b. b. increase in supply
c. increase in demand
d. price ceiling above the equilibrium price
e. none of the above
Draw a correctly labeled graph illustrating hypothetical supply and demand
curves for the U.S. automobile market. Label the equilibrium price and quantity.
Suppose the government institutes a quota to limit automobile production. Draw
a vertical line labeled Qineffective to show the level of a quota that would have
no effect on the market. Draw a vertical line labeled Qeffective to show the
level of a quota that would have an effect on the market. Shade in and label the
deadweight loss resulting from the effective quota. Label the demand price, the
supply price, and the quota rent. Caculate the size of the deadweight loss.
A household is a person or group of people
who share income. A firm is an organization
that produces goods and services for sale.

Product markets are where goods and

services are bought and sold.

Factor markets are where resources,

especially capital and labor, are bought and
sold.

Consumer spending is household spending

on goods and services.
Government transfers are payments that the government makes to individuals without expecting a good or service in
return.
Disposable income= Total income+government transfers-taxes,
Private savings= disposable income-consumer spending, is disposable income that is not spent on consumption. The
financial markets: channel private savings and foreign lending into investment spending, government borrowing, and foreign
borrowing
A stock is a share in the ownership of a company held by a shareholder.
A bond is a loan in the form of an IOU that pays interest.
Government borrowing: The amount of funds borrowed by the government in the financial markets.
Government purchases: total expenditures on goods and services by federal, state, and local governments.
Exports: Goods and services sold to other countries
Imports: Goods and services we buy from other countries
Inventories are stocks of goods and raw materials held to facilitate business operations.
Investment spending: spending on new capital, such as machinery and structures, and on changes in inventories
National income and product accounts, or national accounts, keep track of the
flows of money between different sectors of the economy.
Gross domestic product, or GDP, is the total value of all final goods and services produced in the economy during
a given year.
Final goods and services v Intimidate goods and services
Three ways to calculate
Survey firms to calculate the value of all their final goods and services produced
Add up the factor income earned by households in the economy
Aggregate spending: Add up spending on goods and services produced in the United States
GDP=C+I+G+(X-IM)
(X-IM)=Net Exports
The value added of a producer is the value of its sales minus
the value of its purchases of inputs