The supply and demand model can be applied to realworld events.
There is a price ceiling and a price floor in the market.
You can view the economy through supply and demand.
The supply/demand lens is used to consider real-world events.
You can apply supply/demand analysis to real-world events.
There are three events.
Try to explain what happened using supply and demand curves.
Figure 5-1 has some diagrams to help you in the process.
In each, be careful to explain which curve, or curves, shifted and how that affected equilibrium price and quantity.
Half a million acres of land in California are not being used.
Sand is a key ingredient in the process of fracking for oil and natural gas in the United States.
There are three shifts of supply and demand in this exhibit.
Match them with the events listed in the text.
A growing middle class in China and India has increased the demand for food products such as soy and palm.
To meet the increasing demand for corn and soy, U.S. farmers have decided to grow more corn and less soy.
Let's see if your analysis matches mine after you've matched them.
The weather is a factor of supply.
The invisible hand of the market pushes the price up until the quantity demanded is equal to the price.
The process of fracking involves the use of sand.
Oil and gas producers in the U.S. increased their demand for sand.
The sellers ran out of sand and raised their price.
Let's review the examples that we've been through.
The curves will shift if demand and supply are not affected by the price of the good.
When both curves are shifting, you can get a change in price but little change in quantity, or a change in quantity but little change in price.
The effects of supply or demand curve shifts.
For supply, do the same thing.
The new keep things straight is where the equilibrium price and quantity are.
Draw the initial demand and supply curves and compare them to the initial equilibrium price and quantity.
The quantity and price are the new equilibrium price.
If only price has changed, no curves will shift and a graphs below.
There has been demand and supply for a hormone.
You have to decide what shifts produced the results.
I began the chapter with a variation of this exercise.
It goes over the production by 20 percent.
On the left-hand side of Table 5-1, I list graphically what effect this discovery would have on the price and quantity of combinations of movements of observed prices and quantities.
Milk is sold in a market.
Demand goes out.
Demand goes out.
There is a shift in supply.
Demand goes out.
There is a shift in supply.
The table shows the effects of supply and demand on equilibrium price and quantity.
The relative size of the shifts affects the Q down on either price or quantity.
If both demand and supply shift, let me give you the answers I came up with.
The price and quantity decline when the demand curve is downward-sloping.
Number 2 is on the left.
The price and quantity would go up.
Higher prices and lower quantity are caused by supply shifting to the left.
The match must be number 3 because it's unclear what happens to quantity.
This is the same as number 6.
We move out along the new demand curve.
The quantity goes up even more when the price goes down.
This is the same as number 5.
The diagrammatic of the com binations is presented as a summary.
People don't like the market-determined price.
People would have to accept the invisible hand as the sole factor that determined prices.
The price is determined by social and political forces.
When prices fall, sellers look to government for ways to hold prices up, while buyers look to government for ways to hold prices up.
Let's start with an example of a price being held down.
Many different models are used by economists.
When I discuss a real-world market as fitting a model, I use a pedagogical license.
The conclusions that come out of a model are given by the assumptions.
It is necessary to consider which assumptions of the model fit the situation one is describing.
When World War II ended, the price ceiling on housing rent in Paris created a short age of housing.
If rents were allowed to rise to $17 per month, the shortage would have been eliminated.
The limit is below the equilibrium price.
quantity demanded will exceed quantity supplied and there will be excess demand if the price is below the Rent Control equilibrium price.
In the real world, excess demand shows up.
Rent controls exist in a number of American cities as well as other cities around the world.
The first half of the 20th century saw the introduction of many of the laws governing rent.
For example, consider Paris.
Rent was frozen by the Paris government in World War II to make up for the financial burden of wage earner families who were sent to fight.
When the soldiers returned after the war, the rent control was still in place, and it was felt that it was an unfair burden on veterans.
The figure shows a situation.
There was an enormous shortage of apartments because of the below-market rent.
Since they got low-cost apartments, the shortage didn't bother those who were renting.
It created a lot of hardship for people who didn't have apartments.
Many families moved in with friends.
Others lived on the streets because they couldn't find housing.
The rent controls caused problems for people who did not have apartments.
Maintenance is cut back by owners of buildings.
20 percent of the private bathrooms had no running water.
Existing buildings weren't kept in repair because rental properties weren't profitable.
It was even harder for people who didn't have apartments.
Alternative methods of rationing were developed because the market price was not allowed to ration apartments.
They moved their furniture before anyone else.
Rent controls were lifted when the situation got so bad.
The system of rent controls is more than just historical.
Some phenomena have existed in New York City in the past.
A couple paid $450 a month for a two-bedroom Park Avenue apartment with a solarium and two terraces, while another individual paid $3,500 a month for a studio apartment shared with two roommates.
The apartment vacancies in New York City were 1.2 percent.
Anything under 5 percent is considered a housing emergency.
Key money is payments made by would-be tenants to current tenants or landlords to get apartments.
To demonstrate the situation that likely caused them.
You can check my answers with my answers.
Take the first item.
The couple lived in a rent-controlled apartment while the individual with roommates didn't.
The housing emergency was caused by rent control.
Excess demand and little vacancies were caused by below-market rent.
Nonprice rationing caused Mia Farrow to rent a rent-controlled apartment.
Other methods of rationing came about instead of being rationed by price.
In New York City, strict no longer rationed by price.
Nonprice rationing is one of the methods of rationing existing goods.
Many new residents discovered that illegal payments to landlords were the only way to get a rent-controlled apartment.
A key money is a black market payment.
Individuals were willing to pay more than the controlled price because of the limited supply of apartments.
Landlords used other methods of rationing the limited supply of apartments--instituting first-come, first-served policies, and selecting tenants based on gender, race, or other personal characteristics, even though such discrimination was il egal.
In some cases in New York City, the rent was so low that developers were able to buy the building from the landlord, tear it down, and replace it with a new apartment building.
No community would institute rent controls if they only had bad effects.
To cope with sudden increases in demand for housing that would otherwise cause rents to explode and force many poor people out of their apartments, they are implemented with good intentions.
The number of people looking to rent and unable to find apartments increases as buildings begin to degrade.
The result is excess supply.
The minimum wage is an example of a price floor.
It has been raised many times.
The federal minimum wage was $7 per hour.
Twenty-nine states had minimum wages that were higher than the federal minimum.
Almost all of the workers who receive the minimum wage are unskilled and/or part-time.
Most full-time adult workers are paid above the minimum wage.