feb 4th

Supply and Demand Practice Problems

  • Class Activities

    • Introduction to supply and demand practice problems in class.

    • Handouts provided for repetition and practice.

    • In-class graph drawing of supply and demand curves.

  • Homework Due Date

    • Initial due date was the ninth; moved to the eleventh.

  • Review of Previous Material

    • Discussion of previous topic on supply and demand.

    • Recap of examples discussed in class regarding demand curves, specifically related to flat screen TVs.

Graphing Supply and Demand

  • Initial Demand and Supply Curves

    • Importance of understanding initial curves to analyze market changes.

    • Example used: flat screen TVs.

  • Shifts in Supply Curve

    • Shifts may occur due to external factors, such as improvements in manufacturing methods.

    • Explanation of how such improvements shift the entire supply curve to the right (S1 to S2).

    • Illustrated on the graph with new equilibrium (Q2, P2).

In-Class Problem Discussion

  • Guidance on Classwork

    • Students encouraged to ask questions while they work.

    • Example scenarios introduced:

    • Students reminded to label graphs properly.

    • Graphs must represent meaningful data with context (e.g., time frame).

Practical Problem Examples

Question 1: Market for Tablet Devices

  • 1(a): Decrease in Consumer Incomes

    • Effect on demand curve: Shifts left due to decreased purchasing power.

    • Graph depiction: Indicate what happens at each price level; demand decreases.

  • 1(b): Increase in Price of Ultrapthin Computers (substitutes)

    • Result: Demand for tablet devices increases (shifts right).

    • Succinctly practice graphing resulting changes.

  • 1(c): Increase in Price of Apps (complements)

    • Effect on tablet device demand: Decreases demand (shifts left).

  • 1(d): Increase in Number of Consumers

    • Demand curve shifts right, indicating increased market demand.

Question 2: Market for Smartphones

  • 2(a): Price of Touch Screens Decreases

    • Input cost decreases leads to an increase in supply curve (shifts to the right).

  • 2(b): Price of Machinery Increases

    • Result: Supply curve shifts to the left, indicating decreased supply due to increased production costs.

Introduction to Price Controls

Types of Price Controls

  • Price Ceilings

    • Defined as the maximum price set for a good or service, leading to shortages when set below equilibrium.

    • Example: Rent control policies.

  • Historical Context of Price Controls

    • Nixon's price freeze during the 1970s inflation crisis.

    • Politically appealing but can lead to market inefficiencies.

Rent Control Specifics

  • Purpose of Rent Control

    • Aimed at making housing affordable.

    • Graphical depiction of equilibrium price ($1200) versus controlled price ($700).

  • Consequences of Price Ceilings

    • Shortages: Quantity demanded exceeds quantity supplied at the controlled price.

    • Transfer of Income: Landlords to tenants; rent reductions benefit tenants but reduce income for landlords.

    • Incentive Effects: Reduced incentive for landlords to maintain properties or construct new housing.

    • Market Inefficiencies: Inefficient allocation of housing leads to mismatches in supply and demand due to regulated price.

    • Formation of Black Markets: Unofficial and illegal arrangements can arise as tenants navigate a restricted market.

    • Reduced Maintenance: Less emphasis on property upkeep due to financial disincentives for landlords.

Social and Market Implications

  • Economic Implications: Price controls can result in unintended economic consequences.

    • Labelling of markets and clear communication in economic transactions is critical.

Summary and Next Steps

  • Upcoming Classes

    • Further exploration of price floors (minimum wage discussions) and remaining graphs to be covered in the next class session.