CFA經(jīng)濟(jì)學(xué)市場運(yùn)行

1、Markets in ActionAfter studying this chapter you will be able toExplain how housing markets work and how price ceilings create housing shortages and inefficiencyExplain how labor markets work and how minimum wage laws create unemployment and inefficiencyExplain the effects of a taxExplain why farm p

2、rices and revenues fluctuate and how production subsidies and quotas influence farm production, costs, and pricesExplain how markets for illegal goods workTurbulent TimesAs more people compete for scarce land, house prices and rents rise.As new technologies replace low-skilled labor, the demand for

3、low-skilled workers falls.Can governments control prices and wages?How do taxes affect prices and quantities, and who pays the tax: the buyer or the seller?How are farm prices and incomes affected by fluctuations in harvests?What happens in a market when trading a good is illegal?Housing Markets and

4、 Rent CeilingsThe 1906 earthquake in San Francisco left 200,000 peoplemore than half the cityhomeless.By the time the San Francisco Chronicle started publishing again, a month after the earthquake, there was not a single mention of a housing shortage.The classified advertisements listed many more ho

5、uses and flats for rent than the advertisements for houses and flats wanted.How did the market achieve this outcome?Housing Markets and Rent CeilingsThe Market Response to a Decrease in SupplyFigure 1 shows the San Francisco housing market before the earthquake.The quantity of housing was 100,000 un

6、its and the rent was $16 a month at the intersection of the curves D and SS.Housing Markets and Rent CeilingsThe earthquake decreased the supply of housing and the supply curve shifted leftward to SSA.The rent increased to $20 a month and the quantity decreased to 72,000 units.Housing Markets and Re

7、nt CeilingsThe long-run supply of housing is perfectly elastic at $16 a month.With the rent above $16 a month, new houses and apartments are built.Long-Run AdjustmentHousing Markets and Rent CeilingsThe building program increases supply and the supply curve shifts rightward.The quantity of housing i

8、ncreases and the rent falls to the pre-earthquake levels (other things remaining the same).Housing Markets and Rent CeilingsA price ceiling is a regulation that makes it illegal to charge a price higher than a specified level.When a price ceiling is applied to a housing market it is called a rent ce

9、iling.If the rent ceiling is set above the equilibrium rent, it has no effect. The market works as if there were no ceiling.But if the rent ceiling is set below the equilibrium rent, it has powerful effects.A Regulated Housing MarketHousing Markets and Rent CeilingsFigure 2 shows the effects of a re

10、nt ceiling that is set below the equilibrium rent.The equilibrium rent is $20 a month.A rent ceiling is set at $16 a month.So the equilibrium rent is in the illegal region.Housing Markets and Rent CeilingsAt the rent ceiling, the quantity of housing demanded exceeds the quantity supplied and there i

11、s a housing shortage.Housing Markets and Rent CeilingsWith a housing shortage, people are willing to pay $24 a month.Because the legal price cannot eliminate the shortage, other mechanisms operate: Search activity Black marketsHousing Markets and Rent CeilingsSearch ActivityThe time spent looking fo

12、r someone with whom to do business is called search activity.When a price is regulated and there is a shortage, search activity increases.Search activity is costly and the opportunity cost of housing equals its rent (regulated) plus the opportunity cost of the search activity (unregulated).Because t

13、he quantity of housing is less than the quantity in an unregulated market, the opportunity cost of housing exceeds the unregulated rent.Housing Markets and Rent CeilingsBlack MarketsA black market is an illegal market that operates alongside a legal market in which a price ceiling or other restricti

14、on has been imposed.A shortage of housing creates a black market in housing.Illegal arrangements are made between renters and landlords at rents above the rent ceilingand generally above what the rent would have been in an unregulated market.Housing Markets and Rent CeilingsInefficiency of Rent Ceil

15、ingsA rent ceiling leads to an inefficient use of resources.The quantity of rental housing is less than the efficient quantity, so a deadweight loss arises.Figure 3 illustrates.Housing Markets and Rent CeilingsA rent ceiling decreases the quantity of rental housing.People use resources in search act

16、ivity, which decreases producer surplus and consumer surplus.And a deadweight loss arises.Housing Markets and Rent CeilingsAre Rent Ceilings Fair?According to the fair rules view, a rent ceiling is unfair because it blocks voluntary exchange.According to the fair results view, a rent ceiling is unfa

17、ir because it does not generally benefit the poor.A rent ceiling decreases the quantity of housing and allocates the scarce housing using: Lotteries Queues DiscriminationHousing Markets and Rent CeilingsA lottery gives scarce housing to the lucky.A queue gives scarce housing to those who have the gr

18、eatest foresight and get their names on the list first.Discrimination gives scarce housing to friends, family members, or those of the selected race or sex.None of these methods leads to a fair outcome.Housing Markets and Rent CeilingsRent Ceilings in PracticeNew York, San Francisco, London, Paris,

19、and Boston have or have had rent ceilings.Atlanta, Baltimore, Chicago, Dallas, Philadelphia, Phoenix, and Seattle have never had them.Comparing cities with and without rent ceilings, we learn:1. Rent ceilings definitely create a housing shortage.2. Rent ceilings lower rents for the lucky few and rai

20、se them for everyone else.Winners are long-standing residents.Losers are mobile newcomers.The Labor Market and Minimum WageNew labor-saving technologies become available every year, which mainly replace low-skilled labor.Does the persistent decrease in the demand for low-skilled labor depress the wa

21、ge rates of these workers?The immediate effect of these technological advances is a decrease in the demand for low-skilled labor, a fall in the wage rate, and a decrease in the quantity of labor supplied.Figure4 on the next slide illustrates this immediate effect.The Labor Market and Minimum WageA d

22、ecrease in the demand for low-skilled labor is shown by a leftward shift of the demand curve.A new labor market equilibrium arises at a lower wage rate and a smaller quantity of labor employed.The Labor Market and Minimum WageIn the long run, people get trained to do higher-skilled jobs.The supply o

23、f low-skilled labor decreases and the short-run supply curve shifts leftward.If long-run supply is perfectly elastic, the equilibrium wage rate returns to its initial level (other things remaining the same).The Labor Market and Minimum WageA Minimum WageA price floor is a regulation that makes it il

24、legal to trade at a price lower than a specified level.When a price floor is applied to labor markets, it is called a minimum wage.If the minimum wage is set below the equilibrium wage rate, it has no effect. The market works as if there were no minimum wage.If the minimum wage is set above the equi

25、librium wage rate, it has powerful effects.The Labor Market and Minimum WageIf the minimum wage is set above the equilibrium wage rate, the quantity of labor supplied by workers exceeds the quantity demanded by employers. There is a surplus of labor.Because employers cannot be forced to hire a great

26、er quantity than they wish, the quantity of labor hired at the minimum wage is less than the quantity that would be hired in an unregulated labor market.Because the legal wage rate cannot eliminate the surplus, the minimum wage creates unemployment.Figure 5 on the next slide illustrates these effect

27、s.The Labor Market and Minimum WageThe equilibrium wage rate is $4 an hour.The minimum wage rate is set at $5 an hour.So the equilibrium wage rate is in the illegal region.The quantity of labor employed is the quantity demanded.The Labor Market and Minimum WageThe quantity of labor supplied exceeds

28、the quantity demanded.With only 20 million hours demanded, some workers are willing to supply the last hour demanded for $3.Unemployment is the gap between the quantity demanded and the quantity supplied.The Labor Market and Minimum WageInefficiency of a Minimum WageA minimum wage leads to an ineffi

29、cient use of resources.The quantity of labor employed is less than the efficient quantity and there is a deadweight loss.Figure 6 illustrates this loss.The Labor Market and Minimum WageA minimum wage decreases the quantity of labor employed.If resources are used in job search activity, workers surpl

30、us and firms surplus decrease. And a deadweight loss arises.The Labor Market and Minimum WageFederal Minimum Wage and Its EffectsA minimum wage rate in the United States is set by the federal governments Fair Labor Standards Act.In 2007, the federal minimum wage rate was $5.15 an hour.Some state gov

31、ernments have set minimum wages above the federal minimum wage rate.Most economists believe that minimum wage laws increase the unemployment rate of low-skilled younger workers.The Labor Market and Minimum WageA Living WageA living wage has been defined as an hourly wage rate that enables a person w

32、ho works a 40 hour week to rent adequate housing for not more than 30 percent of the amount earned.Living wage laws already operate in many cities such as St. Louis, Boston, Chicago, and New York City.The effects of a living wage are similar to those of a minimum wage.TaxesEverything you earn and mo

33、st things you buy are taxed.Who really pays these taxes?Income tax and the Employment Insurance tax are deducted from your pay, and provincial sales tax and GST is added to the price of the things you buy, so isnt it obvious that you pay these taxes?Isnt it equally obvious that your employer pays th

34、e employers contribution to the Employment Insurance tax?Youre going to discover that it isnt obvious who pays a tax and that lawmakers dont decide who will pay!TaxesTax IncidenceTax incidence is the division of the burden of a tax between the buyer and the seller.When an item is taxed, its price mi

35、ght rise by the full amount of the tax, by a lesser amount, or not at all.If the price rises by the full amount of the tax, the buyer pays the tax.If the price rise by a lesser amount than the tax, the buyer and seller share the burden of the tax.If the price doesnt rise at all, the seller pays the

36、tax.TaxesTax incidence doesnt depend on tax law!The law might impose a tax on the buyer or the seller, but the outcome will be the same.To see why, we look at the tax on cigarettes in New York City.On July 1, 2002, New York City raised the tax on the sales of cigarettes from almost nothing to $1.50

37、a pack.What are the effects of this tax?TaxesA Tax on SellersFigure7 shows the effects of this tax.With no tax, the equilibrium price is $3.00 a pack.A tax on sellers of $1.50 a pack is introduced.Supply decreases and the curve S + tax on sellers shows the new supply curve.TaxesThe market price paid

38、 by buyers rises to $4.00 a pack and the quantity bought decreases.The price received by the sellers falls to $2.50 a pack.So with the tax of $1.50 a pack, buyers pay $1.00 a pack more and sellers receive 50 a pack less.TaxesA Tax on BuyersAgain, with no tax, the equilibrium price is $3.00 a pack.A

39、tax on buyers of $1.50 a pack is introduced.Demand decreases and the curve D tax on buyers shows the new demand curve.TaxesThe price received by sellers falls to $2.50 a pack and the quantity decreases.So with the tax of $1.50 a pack, buyers pay $1.00 a pack more and sellers receive 50 a pack less.T

40、he price paid by buyers rises to $4.00 a pack.TaxesSo, exactly as before when the seller was taxed:The buyer pays $1.00 of the tax.The seller pays the other 50 of the tax.Tax incidence is the same regardless of whether the law says the seller pays or the buyer pays.TaxesTax Division and Elasticity o

41、f DemandThe division of the tax between the buyer and the seller depends on the elasticities of demand and supply.To see how, we look at two extreme cases. Perfectly inelastic demand: the buyer pays the entire tax. Perfectly elastic demand: the seller pays the entire tax.The more inelastic the deman

42、d, the larger is the buyers share of the tax.TaxesDemand for this good is perfectly inelasticthe demand curve is vertical.When a tax is imposed on this good, the buyer pays the entire tax.TaxesThe demand for this good is perfectly elasticthe demand curve is horizontal.When a tax is imposed on this g

43、ood, the seller pays the entire tax.TaxesTax Division and Elasticity of SupplyTo see the effect of the elasticity of supply on the division of the tax payment, we again look at two extreme cases. Perfectly inelastic supply: the seller pays the entire tax. Perfectly elastic supply: the buyer pays the

44、 entire tax.The more elastic the supply, the larger is the buyers share of the tax.TaxesThe supply of this good is perfectly inelasticthe supply curve is vertical.When a tax is imposed on this good, sellers pay the entire tax.TaxesThe supply of this good is perfectly elasticthe supply curve is horiz

45、ontal.When a tax is imposed on this good, buyers pay the entire tax.TaxesTaxes in PracticeTaxes usually are levied on goods and services with an inelastic demand or an inelastic supply.Alcohol, tobacco, and gasoline have inelastic demand, so the buyers of these items pay most the tax on them.Labor h

46、as a low elasticity of supply, so the sellerthe workerpays most of the income tax and most of the Social Security tax.TaxesTaxes and EfficiencyExcept in the extreme cases of perfectly inelastic demand or perfectly inelastic supply when the quantity remains the same, imposing a tax creates inefficien

47、cy.Figure 11 shows the inefficiency created by a $10 tax on CD players.TaxesWith no tax, the market is efficient and total surplus (the sum of consumer surplus and producer surplus) is maximized.A tax shifts the supply curve, decreases the equilibrium quantity, raises the price to the buyer, and low

48、ers the price to the seller.TaxesThe tax revenue takes part of the consumer surplus and producer surplus.The decreased quantity creates a deadweight loss.Subsidies and QuotasFluctuations in the weather bring big fluctuations in farm output.How do changes in farm output affect the prices of farm prod

49、ucts and farm revenues?How might farmers be helped by intervention in markets for farm products?Subsidies and QuotasHarvest FluctuationsFigure 12(a) shows the market for wheat in normal times.Once the crop is planted, supply is perfectly inelastic along the momentary supply curve MS0.The price is $4

50、 a bushel and farm total revenue is $80 billion.Subsidies and QuotasPoor HarvestSupply decreases.Farmers lose $20 billion of total revenue on the decreased quantity sold.But they gain $30 billion from the higher price.Because demand for wheat is inelastic, total revenue increasesto $90 billion.Subsi

51、dies and QuotasBumper HarvestSupply increases.Farmers lose $40 billion of total revenue on the original quantity because the price falls.They gain only $10 billion from the increased quantity.Because demand for wheat is inelastic, total revenue decreasesto $50 billion.Subsidies and QuotasInterventio

52、n in markets for farm products takes two main forms: Subsidies Production quotasA subsidy is a payment made by the government to a producer.A production quota is an upper limit to the quantity of a good that may be produced during a specified period.Subsidies and QuotasSubsidiesWith no subsidy, the

53、price is $40 a ton and the 40 million tons a year are produced.With a subsidy of $20 a ton, marginal cost minus subsidy falls by $20 a ton and the new supply curve is S subsidy.Subsidies and QuotasThe market price falls to $30 a ton and farmers increase production to60 million tons a year. With the

54、subsidy, farmers receive more on each ton soldthe price of $30 a ton plus the subsidy of $20 a ton, which is $50 a ton.But farmers marginal cost increases to $50 a ton.Subsidies and QuotasProduction QuotasWith no quota, the price is $30 a ton and 60 million tons a year are produced.With the quota, t

55、otal production decreases to 40 million tons a year.The market price rises to $50 a ton and marginal cost falls to $20 a ton.Markets for Illegal GoodsThe U.S. government prohibits trade of some goods, such as illegal drugs.Yet, markets exist for illegal goods and services.How does the market for an illegal good work?To see how the market for an illegal good works, we begin by looking at a free market and see the changes that occur when the good is made illegal.Markets for Illegal GoodsA Free Market for a DrugFigure 15 shows t