Plan for today
- Why do supply curves slope upward?
- Continue demand-supply analysis based on the news clip
- Why is market equilibrium so special?
- Work on a positive analysis of the minimum wage
Why do supply curves slope upward?
- Recall our sandwiches and birdhouses example.
- The slopes of combined PPF actually enables you to justify why supply curves slope upward.
Return to our news clip
- I only analyzed the effect of the fire at the largest refinery.
- I have not analyzed the added effects of the summer driving season and the entry of fuel supplies from outside the US.
Why is market equilibrium so special?
- Think about the participants in the market.
- Think about consumer surplus and producer surplus.
- Think about what happens if you are not in equilibrium.
- What if there is a quota?
- What if a strong influence says that firms should see more than the equilibrium quantity at a low price?
- Bottom line: Market equilibrium without interventions produces the best outcomes for both consumers and producers.
- This is from the standpoint of efficiency: where no one is made better off without making someone else worse off.
- There might be compelling reasons to trade off a bit of efficiency to pursue some other ideal other than efficiency. But this is more complicated than most realize.
Market interventions
- Do you think the names “price ceiling” and “price floor” are misleading? Why or why not?
- Work on minimum wage questions from Meeting 06.