经济学EconomicsforToday3E4.pptVIP

A decrease in demand * Changes in supply Recall from chapter 3 that changes in supply occur as a result of changes in: technology number of sellers in the market resource prices taxes and subsidies expectations of producers. * * An increase in supply If one of these factors causes an increase in supply, the result will be: a decrease in prices an increase in quantity demanded. An increase in supply * * A decrease in supply If one of these factors causes a decrease in supply, the result will be: an increase in prices a decrease in quantity demanded. A decrease in supply * Can the laws of supply and demand be repealed? For various reasons, governments implement price controls to restrict market forces. There are two types of price controls: price ceilings price floors. Price ceilings and price floors are maximum and minimum prices enacted by law. * * Price ceilings A price ceiling is a legally established maximum price a seller can charge. It always results in an excess of quantity demanded over quantity supplied. This is called a shortage. Price ceilings (cont.) * * Price ceilings (cont.) Price ceilings on rent help needy people by keeping prices lower than the equilibrium. But they may be counterproductive if they cause: shortages illegal markets less maintenance discrimination. Price floors A price floor is a legally established minimum price a seller can be paid. It always results in an excess of quantity supplied over quantity demanded. This is called a surplus. * Price floors (cont.) * * Examples of price floors Price floor examples are minimum wages and agricultural price supports. These can also have unintended consequences: unemployment overproduction and waste of resources. * Market failure The price system may not always operate efficiently, as society fails to achieve some goals. We consider four examples: lack of competition in the market externalities public goods income inequality. * Market failure (cont.) Market failure means that the market mechanism