Post on 30-Mar-2015
Equilibrium: Again
Buyers can buy all they want and sellers can sell
all they want at the equilibrium price
Price per Bottle
Bottles per week
0
S
D
California White Wine
$11.00
$13.00
$9.00
A B
H G
Є
3,500 4,500 5,500
Surplus
Shortage
Price per Bottle
0
S
D1
Bottles per week
Increase in the price of white wine substitutes (red wine, scotch, beer . . .), ceteris paribus
D2
$11.00
$13.00
4,500 5,500
Keep in mind that as the equilibrium price and quantity of white wine increases, a greater
share of scarce resources will be allocated to the production of
white wine—leaving fewer resources for everything else
Price per Bottle
0
S
D0
Bottles per week
Increase in the price of white wine complements (lobster, turkey . . .), ceteris paribus
D1
$9.00
$11.00
3,500 4,500
Price per Bottle
0
S
D0
Bottles per week
Increase in the consumer incomes, ceteris paribus
D1
$9.00
$11.00
3,500 4,500
Price per Bottle
0
S1
D1
Bottles per week
Increase in the price of white grapes, ceteris paribus
S0
$11.00
$13.00
4,5003,500
Simultaneous Shifts of Simultaneous Shifts of Supply and DemandSupply and Demand
Hours of Day Care
Price per Hour S1990
S2001
P2001
Q2001
P1990
Q1990
D1990
D2001
A
B
Effect of Supply and Demand Effect of Supply and Demand Shifts on Equilibrium Price Shifts on Equilibrium Price
and Quantityand Quantity
Price Floors and Ceilings
“Legal restrictions on market price”
•Price ceiling: The highest price at which it is legal to trade a particular good, service, or factor of production.
Examples: Rent controls in NYC; Usury ceilings in Arkansas; ceilings on grain storage fees in Illinois.
Price floors: The lowest price at which it is legal to trade a particular good, service, or factor of production
Examples: Dept. of Agriculture loan rates for corn, soybeans, cotton, rice, peanuts, . . . ;The minimum wage.
Monthly Rent
Rental Units0
S
D
4,000 5,700 7,000
$900
$1,120
Shortage
If the Rent Control Board sets a ceiling of $900 per month, 3,000 apartment-seekers won’t be able to find one.
The rental housing market in New York City
Does the minimum wage create unemployment?
Quantity (thousands of workers)
D
SWage rate (dollars per hour)
0 3 7
unemployment
$5.15
I believe increasing the minimum wage will cause
unemployment among the unskilled and less-
educated to rise
P/BU
bushels0
#2 Hard KC Wheat
S
D
550 700 850
$2.52
$3.20
Surplus
A price floor of $3.20 per bushel will
produce a surplusof 300 bushels.
But what ifthe floor were set
at $2.35?