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Equilibrium: Again
Buyers can buy all they want and sellers can sell
all they want at the equilibrium price
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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
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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
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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
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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
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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
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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
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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
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Effect of Supply and Demand Effect of Supply and Demand Shifts on Equilibrium Price Shifts on Equilibrium Price
and Quantityand Quantity
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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.
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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
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Does the minimum wage create unemployment?
Quantity (thousands of workers)
D
SWage rate (dollars per hour)
0 3 7
unemployment
$5.15
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I believe increasing the minimum wage will cause
unemployment among the unskilled and less-
educated to rise
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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?