ECON 208 Lecture Notes - Lecture 7: Economic Equilibrium, Price Controls, Shortage

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: El- Attar Mayssun

Document Summary

Situations in which the governments may think about changing equilibrium price. When during the icelandic volcano cloud there was an increase in the prices of hotel rooms. 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. With administered prices, the quantity dis determined by the lesser of quantity demanded and supplied. Price floors make it illegal to sell product below the controlled price. Firms: are worse off, they have to pay a higher wage than before. Workers: the ones that keep the job are better off, the ones that are unemployed are worse off. Examples of price floors: legislated wages, agricultural products. Stabilize and increase income of farmers; farmers are an organized group and losses are spread across a large and diverse group of purchasers. Accumulation of grain in elevators or government warehouses.