Supply, Demand and Government policies C Chapter 6
Supply, Demand and Government Policies Chapter 6
Importance of Supply-Demand Analysis A little knowledge goes a long way Price Control, taxation and other policies e Market welfare: Normative analysis International Trade Externality(Market Failure) Market Power(Market Failure) Other markets: Financial market Labor market ● Macroeconomics
Importance of Supply-Demand Analysis A little knowledge goes a long way: • Price Control, Taxation and other policies. • Market welfare: Normative Analysis • International Trade • Externality (Market Failure) • Market Power (Market Failure) • Other markets: Financial Market, Labor Market. • Macroeconomics
Supply, demand and Government policies In a free, unregulated market system, market forces establish equilibrium prices and exchange quantities While equilibrium conditions may be efficient, it may be true that not everyone is satisfied One of the roles of economists is to use their theories to assist in the development of policies
Supply, Demand and Government Policies • In a free, unregulated market system, market forces establish equilibrium prices and exchange quantities. • While equilibrium conditions may be efficient, it may be true that not everyone is satisfied. • One of the roles of economists is to use their theories to assist in the development of policies
Price control ●●● Are usually enacted when policymakers believe the market price is unfair to buyers or sellers o Result in government-created price ceilings and floors
Price Control… • Are usually enacted when policymakers believe the market price is unfair to buyers or sellers. • Result in government-created price ceilings and floors
Price ceilings price floors Price Ceiling A legally established maximum price at which a good can be sold Price floor e A legally established minimum price at which a good can be sold
Price Ceilings & Price Floors Price Ceiling • A legally established maximum price at which a good can be sold. Price Floor • A legally established minimum price at which a good can be sold