ECON 208 Lecture Notes - Lecture 5: Shortage, Demand Curve, Price Floor
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ECON 208 Full Course Notes
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Document Summary
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 economy"s markets simultaneously. Economists must consider how all the markets function together, taking into account the feedback effects between individual markets. 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 is determined by the lesser of quantity demanded and supplied. Ex: if people want 100 and we have 50, 50 will sell. If people want 50 and we have 100, 50 will sell. (we usually do this for inelastic goods, necessities)