Chapter 3 Government Control of Prices in Mixed Systems.

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Presentation transcript:

Chapter 3 Government Control of Prices in Mixed Systems

3 - 3 McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Price Controls Price Ceilings Price Floors

3 - 4 McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. S S D D A B Rent Control Rent per unit $ Quantity (thousands of units per year) A 600

3 - 5 McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Rent Control Rent per unit $ Quantity (thousands of units per year) S S A D D 600 D1D1 D1D S1S1 S1S

3 - 6 McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Minimum Wages - Market Demand for Labor Quantity (thousands of hours per week) Wage rate ($)D D

3 - 7 McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. The Demand for Labor by One Employer (1)(2)(3)(4)(5) Units of Labor Total Production Marginal Product Marginal Revenue Marginal Revenue Product MRP = (3) x (4) $.50$ $ $ $ $ $ $.50.50

3 - 8 McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. The Demand for Labor by One Employer Quantity of Labor

3 - 9 McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Market Supply of Labor Quantity (thousands of hours per week) Wage rate ($)S S Substitution Effect Income Effect

McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Effects of the Minimum Wage Quantity (thousands of hours per week) Wage rate ($)D D S S

McGraw-Hill/Irwin Economics of Social Issues, 17/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Alternative Analysis of the Minimum Wage Quantity (thousands of hours per week) Wage rate ($)D D S S