AGEC 242 Chapter Notes - Chapter 5: London, Paris, New York, Health Care In Canada, Price Ceiling
22 Nov 2012
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No market or industry exists in isolation from all the other markets in the economy. Feedback: change in one market leading to change in many other markets: reduction in natural-gas price. So when oil and propane prices fall, feedback effect n natural- gas market shifts to left (bc=/c substitutes: difficult to predict feedback effect sometimes change is small enough to ignore. Partial-equilibrium analysis: analysis of single market with all feedback effects ignored what we"ve been using so far: used when feedback effect is very small. General-equilibrium analysis: study of how markets function together. Attempt to hold price at disequilibrium value. Quantity exchanged is whichever is lower (supply or demand) Price floors: when set above equilibrium, = binding: binding price floors = excess supply unless someone enters market to buy, labour: minimum wage, excess supply = unemployment, reason is to help suppliers earn more.
