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S
P
1,400
E
1,000
600
Shortage
Q
1.2 1.6 2.0
Millions of apartments
Without rent control, the equilibrium rent is $1000 and the equilibrium number of apartments
rented is 1.6 million. At the controlled rent of $600 per month,2 million apartments could be rented.
Only 1.2 million apartments are available at that rent, so there is a shortage of 800,000 million
apartments. apartment seekers would be willing to pay a rent of $1400 per month when only 1.2
million apartments are available.
Rent Control Harms the Housing Market
The Economics of U.S. Farm Support Programs
1930-
Early 1973 Starting
1930s 1973
Surplus
4
E
0 Q
1.8 2.0 2.2
In the absence of any support program, farmers produce the equilibrium quantity of 2 billion
bushels per year, sell at the equilibrium price of $3 per bushel, and total income of $6
billion. If the government establishes a price floor of $4 per bushel, farmers supply 2.2
billion bushels per year, consumers purchase only 1.8 billion bushels, and the government
must purchase the surplus of 0.4 billion bushels at the support price of $4 per bushel, for a
Working through the Market with an Excise Tax
P($)
2.25
J`` S``
2.00
C S
1.50
E
1.00 J
0.75 N
0 Q
4 6 10
Million hamburgers per day
D and S are the demand and supply curves of hamburgers with the equilibrium point E. If a tax of $0.75 per
hamburger is collected from sellers, S shifts up by the amount of the tax to S``, since sellers now require a price
$0.75 higher than before to realize the same net after-tax price. Now S and S`` define equilibrium point C with
Q = 4 million hamburgers and P = $1.50 or $0.5 higher than before the imposition of the tax.
Working through the Market with an Excise Tax
Effects
Fighting the Drug War by Reducing Demand and Supply
S`
S
P* E*
E``
P
E
D
P` E`
D`
0
Q`` Q* Q
Quantity of an illegal drug
D and S refer to the demand and supply curves for illegal drugs before the government
campaigns to reduce demand and supply. With D and S , the equilibrium price of drugs is P
and the equilibrium quantity is Q with a reduction in demand from D to D , the equilibrium
price of drugs falls to P and the sales to Q . With a reduction in supply from S to S , the
price rises to p* and sales fall to Q* . With D and S the price is P and sales Q.
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