ECO105Y1 Chapter Notes - Chapter 7: Living Wage, Marginal Utility, Unintended Consequences
Document Summary
When high or low prices cause voters pain, governments respond by fixing prices. Prices coordinate smart decisions of consumers and businesses. Fixed prices damage the flow of information between consumers and businesses, and remove the incentives which lead to price fixes. Government fixes price markets try to coordinate policy choices with choices of consumers and businesses may or may not have the intended consequences. When prices is too low, quantities adjust. Market-clearing prices i. e. quantity demanded is equal to the quantity supplied. Crisis in middle east results in a decrease in supply - this results in shifting of the supply curve to the left. After the shift of supply curve, if the prices stays at the market-clearing value, there will be a shortage b/c suppliers wil be willing to only supply a reduced amount of the good. Comeptition among buyers who will make bids, and prices will rise as a result of these.
