Economics and Statistics

Your city council voted to set a price ceiling on the market for good X. The price ceiling is set to be equal to 75% of the current equilibrium price.  The current market demand can be modeled by the equation:   The market supply curve corresponds to the following equation:   Using the given information, find: the new price and the new amount of quantity sold  the shortage a tax per unit of good sold that would result in the same quantity that is available at the price ceiling Derive an equation for the new market supply curve with the tax. First, let's derive the equilibrium price and quantity for this market. Set the demand curve equal to the supply curve. Now that we know the original price (i.e P e ), we can derive the price ceiling and the quantity sold at that price: From our notes, we know that the quantity sold at that price must be equal to the amount that can be supplied by the producers. Therefore, all we ne...

Governments can decide that market prices are unjust, markets may not allocate goods and services to those in need. When this is the case, governments may put  price and quantity controls on the market. In this post we will explore the practice of price ceiling. A price ceiling is a maximum price that both producers and consumers are not allowed to exceed. This practice is used when a government thinks that a market price is excessive. In a competitive market  , if a government decides to impose a binding price ceiling (i.e: the new imposed price is smaller than the original equilibrium price), it results in the quantity demanded being greater than the quantity supplied.  The market is unable to provide a good or service to every consumer willing to buy the product at the new given price, this results in a shortage.  The shortage is represented by the difference between the quantity demanded and the quantity supplied at the new imposed price in the marke...

We recently talked about the factors that cause a shift in the demand. It is now time to discuss the factors that shift the supply curve which cause the equilibrium price and demand to change. Determinants of Supply: changes in supply are caused by changes in the price of inputs, the number of firms in the market, technology, changes in the price of related goods and services, and changes in expected prices. An increase (decrease) in the price of an input results in less (more) supply as per unit production costs rise (fall). More competition increases supply, and less competition leads to less supply. If a new firm enters the market for good X, then the supply of good X increases. Improvement in technology can result in an increase in the ability of producers to supply their products. For example, the invention of the printing press increased the supply of books. An increase (decrease) in the price of a related good leads to an increase (decrease) in the supply of the other...

Whenever there is a shift in the demand or supply curve, the equilibrium price and quantity change. In this post we will explore the impact of a change in the market demand, and the factors that cause these shifts. Determinants of Demand: changes in demand are caused by changes in consumers' tastes, consumers' incomes, and the price of related goods. Consumers' tastes: if the preference for a particular good increases then the demand curve shifts to the right to represent the increase in demand. If there is a decrease in the preference of a good, then the demand decreases which is presented by the shift of the demand curve to the left. Consumers' incomes: the amount of money available to buy goods and services. For normal goods , an increase (decrease) in income results in an increase (decrease) in demand. Change in the price of related goods: Complementary goods: goods that are consumed together, for example buns and hot dogs. If the price of a good dec...

Finding the equilibrium price and quantity is perhaps one of the most common problems in an introduction to Microeconomics  course, which is exactly what we are going to do in this post! Consider the following problem, you are tasked with finding the equilibrium price and quantity for a particular good X.  You are told that the producers are willing and able to sell 2 units for the  price of 16 U.S dollars a unit, and if the price increases, they are able to make 10 units for a price of 20 U.S dollars per unit. Assuming that the supply curve is linear, then it can be modeled by the following equation:   The same process can be used to determine the market demand (assuming linearity and that we are given information about the market demand schedule). At a price of 30 U.S dollars consumers are willing to buy 10 units, if the price decreases to 12 U.S dollars, consumers want to buy 20 units. Thus the demand curve corresponds to this equation: F...