BUSS1040 Lecture Notes - Lecture 9: Free Rider Problem, Price Ceiling, Price Floor

• School: University of Sydney
• Department: Business Studies
• Course: BUSS1040
• Professor: Dr Katrien Stevens

Document Summary

Buss1040 lecture 9 notes (cid:858)market i(cid:374)ter(cid:448)e(cid:374)tio(cid:374)s: pri(cid:272)e egulatio(cid:374), ta(cid:454)es a(cid:374)d su(cid:271)sidies(cid:859) Taxes and subsidiesi: with a tax or a subsidy, the amount apid by consumers is not equal to the amoutnr receieved by producers/firms, price signals are no longer consistent. Monopoly: raises price and restricts output relative to a competitive market. Public goods: goods for which o(cid:374)e perso(cid:374)s co(cid:374)su(cid:373)ptio(cid:374) does (cid:374)ot detract fro(cid:373) a(cid:374)other"s consumption, or enjoyment of the good, defence, policy, some roads, generate a free rider problem. Usuall(cid:455) e(cid:374)a(cid:272)ted (cid:449)he(cid:374) the (cid:373)arket pri(cid:272)e is dee(cid:373)ed (cid:858)u(cid:374)fair(cid:859): minimum wages, public housing, agricultural price support schemes. A price floor (pf) establishes a minimum price at which a good can be sold: not binding if set below the equilibrium or market clearing price, leads to a surplus if it is binding. A binding price floor causes a surplus. Non-price rationing means determine who gets to sell the good or service.