ECO CHAP 4
How are the resource and product markets connected?
A change in the product market affects the demand curve in the resource market.
Rent controls tend to cause persistent imbalances in the market for housing because
Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
How would an increase in the demand for housing affect the market for construction workers?
The demand for construction workers would increase, causing construction workers' wages to rise.
How would a decrease in lumber prices influence the home construction market?
The supply of newly constructed homes will increase.
How would an increase in the price of paper influence the market for college textbooks?
The supply of textbooks would decrease causing the price of textbooks to rise.
A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as
a price floor.
When a price ceiling is imposed below the equilibrium price of a commodity,
a shortage of the good will develop.
Suppose that a tax is placed on a particular good. If the buyers end up bearing most of the tax burden, this indicates that the
demand is more inelastic than the supply.
An effective minimum wage
increases the earnings of some low-skill workers while reducing the employment and training opportunities available to others.
Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is
less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller.
When government imposes price controls in a market,
non-price factors become more important in the rationing of the good.
When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage
occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price.
Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good,
sellers will bear a larger share of the tax burden.
