Economics class notes
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March 20 notes

Shortage

  • A shortage exists when demand is in excess of supply for a period of time
  • A shortage is when price is under equilibrium price

Surplus

  • An economic surplus is the sum of all consumer and producer surpluses in an economy.
  • It’s the opposite of shortage, created when price is greater than equilibrium
  • At a price higher than equilibrium, the quantity supplied is more than the quantity demanded

Price Ceilings

  • Government imposed price control or limit
  • used to protect consumers from prohibitively expensive commodities
  • Price ceilings are usually set by law and are used to ensure fair and reasonable business practices
  • protect low income individuals
  • has no effect if the equilibrium price is lower than the ceiling
  • forces a shortage if higher than equilibrium

Price Floor

  • Lowest price at which something can be sold
  • Protects smaller suppliers from larger suppliers
  • Prevents horizontal integration by deliberately taking losses on products to undercut competitors and run them out of business
  • Government often buys excess
  • Minimum wage

Sticky Price

  • Prices that do not immediately change
  • Prices can be sticky while increasing or decreasing
  • Occur naturally, not government imposed
  • Gentrification
    • Buyer competition for houses, pushes out lower income residents
  • Flexible prices
    • change all the time based on the economy
    • stocks, gas, plane tickets, cryptocurrency

Equilibrium

  • The point at which quantity supplied = quantity demanded