Equilibrium: Again

Buyers can buy all they want and sellers can sell

all they want at the equilibrium price

Price per Bottle

Bottles per week

0

S

D

California White Wine

$11.00

$13.00

$9.00

A B

H G

Є

3,500 4,500 5,500

Surplus

Shortage

Price per Bottle

0

S

D1

Bottles per week

Increase in the price of white wine substitutes (red wine, scotch, beer . . .), ceteris paribus

D2

$11.00

$13.00

4,500 5,500

Keep in mind that as the equilibrium price and quantity of white wine increases, a greater

share of scarce resources will be allocated to the production of

white wine—leaving fewer resources for everything else

Price per Bottle

0

S

D0

Bottles per week

Increase in the price of white wine complements (lobster, turkey . . .), ceteris paribus

D1

$9.00

$11.00

3,500 4,500

Price per Bottle

0

S

D0

Bottles per week

Increase in the consumer incomes, ceteris paribus

D1

$9.00

$11.00

3,500 4,500

Price per Bottle

0

S1

D1

Bottles per week

Increase in the price of white grapes, ceteris paribus

S0

$11.00

$13.00

4,5003,500

Simultaneous Shifts of Simultaneous Shifts of Supply and DemandSupply and Demand

Hours of Day Care

Price per Hour S1990

S2001

P2001

Q2001

P1990

Q1990

D1990

D2001

A

B

Effect of Supply and Demand Effect of Supply and Demand Shifts on Equilibrium Price Shifts on Equilibrium Price

and Quantityand Quantity

Price Floors and Ceilings

“Legal restrictions on market price”

•Price ceiling: The highest price at which it is legal to trade a particular good, service, or factor of production.

Examples: Rent controls in NYC; Usury ceilings in Arkansas; ceilings on grain storage fees in Illinois.

Price floors: The lowest price at which it is legal to trade a particular good, service, or factor of production

Examples: Dept. of Agriculture loan rates for corn, soybeans, cotton, rice, peanuts, . . . ;The minimum wage.

Monthly Rent

Rental Units0

S

D

4,000 5,700 7,000

$900

$1,120

Shortage

If the Rent Control Board sets a ceiling of $900 per month, 3,000 apartment-seekers won’t be able to find one.

The rental housing market in New York City

Does the minimum wage create unemployment?

Quantity (thousands of workers)

D

SWage rate (dollars per hour)

0 3 7

unemployment

$5.15

I believe increasing the minimum wage will cause

unemployment among the unskilled and less-

educated to rise

P/BU

bushels0

#2 Hard KC Wheat

S

D

550 700 850

$2.52

$3.20

Surplus

A price floor of $3.20 per bushel will

produce a surplusof 300 bushels.

But what ifthe floor were set

at $2.35?