ECO101H1 Lecture 5: topic 5 - demand, supply and government policy

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: all

Document Summary

Topic 5 demand, supply and government policy (week five oct 6th oct 13th) - example: minimum wage law: the incidence of sales tax. - numerical examples: a)tax levied on sellers; b)tax levied on buyers; A legal maximum on the price at which a good can be sold: general analysis. Observation: a). price ceiling, which is beneath the market clearing price (equilibrium price), creates shortage; b). Q(p) = minimum [qd(p), qs(p)] (cannot force firm to produce more when they don"t want to; cannot force consumer to demand less when they want to); Non-price rationing: free markets ration goods with price. P: example: rent control (introduced into ontario in 1970s): - discourage construction; (shortage worsen in the long run); - discourage maintenance and other housing services: under-table-payments which essentially bring the price up closer to the equilibrium price; Political response due to increasing population (election purpose) Reduces opportunity for on-the-job training for unskilled workers;