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When We Don’t “Like” the Market Outcome

When We Don’t “Like” the Market Outcome. The Effect of Price Floors, Price Ceilings Tariffs, Quotas, Subsidies and Externalities on the Market Outcome. Price Ceiling. Shortage. Qs. Qd. Price Ceilings. Price. Supply. P*. Demand. 0. Quantity. Q*. Price Ceiling. Q**.

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When We Don’t “Like” the Market Outcome

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  1. When We Don’t “Like” the Market Outcome The Effect of Price Floors, Price CeilingsTariffs, Quotas, Subsidies and Externalities on the Market Outcome

  2. Price Ceiling Shortage Qs Qd Price Ceilings Price Supply P* Demand 0 Quantity Q*

  3. Price Ceiling Q** Solution to shortage problem:offer incentives to suppliers to increase supply Price Supply P* Demand 0 Quantity Q*

  4. Price Ceiling Shortage Qs Qd Solution to shortage problem: Set price = equ. price and offer subsidies to buyers Price Supply P* Subsidy Demand 0 Quantity Q*

  5. Example of price ceiling: Rent Control in the Short Run Controlled rent Shortage Rental Price of Apartment Supply and demand for apartments are relatively inelastic Supply Demand 0 Qs Qd Quantity of Apartments

  6. Example of price ceiling: Rent Control in the Longer Run Controlled rent Shortage 短缺 Supply and demand for apartments are more elastic... Rental Price of Apartment 公寓租金价格 Supply Demand Qs Qd 0 Quantity of Apartments

  7. Surplus Price floor Qd Qs Price Floors Price Supply P* Demand 0 Quantity Q*

  8. Surplus Price floor Qd Qs How to solve the surplus problem? 1. Destroy it 2. Give it away or sell it in another market 3. Pay producers Pf * [ Qs(Pf) – Qd(Pf)] not to produce beyond Qd(Pf) Price Supply Pf P* Demand 0 Quantity Q*

  9. Example of price floor: The Minimum Wage Labor surplus (unemployment) Minimum Wage Quantity Demanded Quantity Supplied Wage Labor supply Labor Demand 0 Quantity of Labor

  10. Effect of Import Tariffs and Quotas: Domestic Price Increases Domestic Price S’ S P2 P1 D Q2 Q1 0 Quantity

  11. Effect of Domestic Subsidies: World Price Declines World Price S S’ P1 P2 D Q2 Q1 0 Quantity

  12. Social Supply (social cost ) Price Negative Externalities Market Supply Psociety (market cost) Pmarket Market Demand (market value) QMARKET Qsociety 0 Quantity

  13. Price Positive Externalities Market Supply Psociety (market cost) Pmarket Social demand (social value) Market Demand (market value) QMARKET Qsociety 0 Quantity

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