Equilibrium: Again

1
Equilibrium Again
Buyers can buy all they want and sellers can sell
all they want at the equilibrium price
2
Price per Bottle
California White Wine
S
Surplus
A
B
13.00
11.00
?
9.00
H
G
D
Shortage
Bottles per week
0
3,500
4,500
5,500
3
Increase in the price of white wine substitutes
(red wine, scotch, beer . . .), ceteris paribus
Price per Bottle
S
13.00
11.00
D2
D1
Bottles per week
0
4,500
5,500
4
Resource Allocation
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 wineleaving fewer resources
for everything else
5
Increase in the price of white wine complements
(lobster, turkey . . .), ceteris paribus
Price per Bottle
S
11.00
9.00
D1
D0
Bottles per week
0
3,500
4,500
6
Increase in the consumer incomes, ceteris paribus
Price per Bottle
S
11.00
9.00
D1
D0
Bottles per week
0
3,500
4,500
7
Increase in the price of white grapes, ceteris
paribus
Price per Bottle
S0
S1
13.00
11.00
D1
Bottles per week
0
4,500
3,500
8
Simultaneous Shifts of Supply and Demand
Price per Hour
P
2001
P
1990
Hours
of Day Care
Q
Q
2001
1990
a
a
9
Effect of Supply and Demand Shifts on
Equilibrium Price and Quantity

10
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.

11
The rental housing market in New York City
Monthly Rent
S
If the Rent Control Board sets a ceiling of 900
per month, 3,000 apartment-seekers wont be able
to find one.
1,120
900
Shortage
D
Rental Units
0
4,000
5,700
7,000
12
Does the minimum wage create unemployment?
Wage rate (dollars per hour)
S
unemployment
5.15
D
0
3
7
Quantity (thousands of workers)
13
I believe increasing the minimum wage will cause
unemployment among the unskilled and
less-educated to rise
14
A price floor in the market for wheat
A price floor of 3.20 per bushel willproduce a
surplusof 300 bushels.But what ifthe floor
were set at 2.35?
2 Hard KC Wheat
P/BU
S
Surplus
3.20
2.52
D
bushels
550
700
850
0