Market Model. Supply and Demand. Markets. Institutions that allow buyers and sellers to exchange Demand Supply Examples Posted-price Haggling Auctions. Equilibrium Price/Quantity. Demand Curve. Demand: how much consumer are willing and able to buy at different prices. Pepsi Auction.
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Supply and Demand
At P1: Qd = Qs
The market “clears”
Note: Quantity Demanded vs Demand
If income rises, demand rises
If income rises, demand falls
If Px rises, demand for Y rises
If Px rises, demand for Y falls
At PHi: Qd < Qs
Pressure on price to fall
At PLo: Qd > Qs
Pressure on price to rise
In the fall of 1903 Ohio Tech students for the first time had to pay to attend university football games; as a result, every game had many empty seats. This decline in attendance suggests that:
A newspaper story recently reported that the price of new cars has increased, and the quantity of new cars sold has dropped. The price and quantity changes were probably caused by:
Consider the market for computers. Suppose that the price of plastic decreases and the income of consumers decreases. What may we conclude about the equilibrium price and quantity of computers?
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.”
Buyer Values (or WTP)
Free Market Outcome: P*, Q* of plastic decreases
Maximizes social welfare: SW = CS + PSSocial Welfare
Garden of Eden of plastic decreases
Tradeoff: Efficiency vs. Equity
Adam and Eve in the Garden of Eden, by Titian (c. 1550)
Supply of plastic decreases
Session 4 of plastic decreases
All generate some DWL
DWL of plastic decreasesPrice Ceiling: Rent Control
At R0: Qd > Qs shortage
Rapidly increasing health costs have been a major political concern since at least 1992. Suppose that to control rising health costs the government sets the maximum price for a normal doctor's visit at $20, but the current market price is $40. Then:
Federal minimum wage will rise to $ 7.25 this summer
Ohio’s minimum wage went up to $7.30 this past January
States with minimum wage rates higher than the Federal rate concern since at least 1992. Suppose that to control rising health costs the government sets the maximum price for a normal doctor's visit at $20, but the current market price is $40. Then:
States with minimum wage rates the same as the Federal rate
States with minimum wage rates lower than the Federal rate
States with no minimum wage law
minimum wage in 2008 dollars concern since at least 1992. Suppose that to control rising health costs the government sets the maximum price for a normal doctor's visit at $20, but the current market price is $40. Then:
minimum wage in current dollars
Minimum Wage Relative to the Average Hourly Wage Rate concern since at least 1992. Suppose that to control rising health costs the government sets the maximum price for a normal doctor's visit at $20, but the current market price is $40. Then:
W2 = $7
Suppose that the equilibrium wage in the low-skilled labor market is $8.00. Further, suppose the federal government raises the minimum wage to $7.25 an hour from its present level of $6.55. The government’s action of increasing the minimum wage will result in:
tax = $1
(Billions of packs)
Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. Based on economic analysis, we would predict that:
Quotas of sweaters by charging suppliers $10 for each sweater sold. Based on economic analysis, we would predict that:
International trade: agricultural goods, textiles
Taxis, liquor licenses
What goods and services are illegal to trade?
Why prohibit trade?
Intrinsic Effects of sweaters by charging suppliers $10 for each sweater sold. Based on economic analysis, we would predict that:
Lower worker productivity
Black Market Effects
Uncertain product quality
Reduced civil liberties
Alcohol: 125m users-----85,000 annual deaths
Tobacco: 70m users-----400,000 annual deaths
Marijuana: 15m users-----0 annual deaths
Cocaine: 2m users----
Heroin: 0.2m users----
17,000 annual deathsWar on Drugs
Tradeoff: Intrinsic Effects v. Black Market Effects
$200 = P1
> More intrinsic costs
> Less black market effects
"If the DEA intercepts 100 tons of cocaine, the supply of cocaine will fall. This will cause the price to rise, which will increase the supply back to its original position."
True, false, or uncertain. Explain.
The number of people seeking to obtain tickets to an OSU football game is nearly always larger than the number of available tickets (and seats) to the game. This is evidence that the price of the ticket is
Which of the following statements uses incorrect terminology:A: "The recent fare war among the major airlines has increased the demand for air travel.“B: "The terrorist attack on America has caused the demand for air travel to fall."
Between 2002 and 2003 bad weather affected the area where most of the world’s vanilla is grown. Which of the graphs below best depicts that situation?
After bad weather affected most of the world’s natural vanilla, which of the graphs below best depicts what happened in the market for synthetic vanilla?
You notice that the price of DVD players falls and the quantity of DVD players sold increases. This set of observations can be the result of:
In 1979 a revolution overthrew the government of Iran, disrupting oil production and causing the price of crude oil to increase by 300 percent. In most of the world this price increase:
This figure shows the supply and demand for clams. The government imposes a quota limiting sales of clams to 8,000 lbs. The quota rent per pound is: