ECON 208 Lecture Notes - Lecture 5: Demand Curve, Price Ceiling, Shortage

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: Naureen Fatema

Document Summary

Econ 208: chapter five markets in action. Partial-equilibrium analysis examines a single market in isolation and ignores feedback effects from other markets. In general, this is appropriate when the specific market is quite small relative to the entire economy. When economists study all markets together, they use general-equilibrium analysis. General-equilibrium analysis is more complicated because it involves the analysis of all the e(cid:272)o(cid:374)o(cid:373)(cid:455)"s (cid:373)arkets si(cid:373)ulta(cid:374)eousl(cid:455). Economists must consider how all the markets function together, taking into account the feedback effects between individual markets. Situations in which the governments may think about changing equilibrium prices: when during the icelandic volcano there was an increase in the prices of hotel rooms, minimum wages, water shortage in boston, housing in manhattan. If price is set above equilibrium, some sellers will be unable to find buyers. Conversely, if price is set below equilibrium, some buyers will be unable to find sellers.