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Chapter 3
Government Control of Prices in Mixed Systems
3 - 3
McGraw-Hill/IrwinEconomics of Social Issues, 17/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Price Controls
• Price Ceilings• Price Floors
3 - 4
McGraw-Hill/IrwinEconomics of Social Issues, 17/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
S
SD
D
A
B
Rent Control
Rent per unit $
Quantity (thousands of units per year)
500
400
8 10 11
A
600
3 - 5
McGraw-Hill/IrwinEconomics of Social Issues, 17/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Rent ControlRent per unit $
Quantity (thousands of units per year)
S
S
500
400
8 10 11
A
D
D
600
D1
D1
13
800
S1
S1
12.5
525
3 - 6
McGraw-Hill/IrwinEconomics 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/IrwinEconomics 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)
0 0
1 5 5 $.50 $2.50
2 25 20 $.50 10.00
3 50 25 $.50 12.50
4 70 20 $.50 10.00
5 80 10 $.50 5.00
6 85 5 $.50 2.50
7 86 1 $.50 .50
3 - 8
McGraw-Hill/IrwinEconomics of Social Issues, 17/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Demand for Labor by One Employer
Quantity of Labor1 2 3 4 5 6 7
2.50
5.00
10.00
12.50
.50
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McGraw-Hill/IrwinEconomics of Social Issues, 17/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Market Supply of Labor
Quantity (thousands of hours per week)
Wage rate ($) S
S
•Substitution Effect
•Income Effect
3 - 10
McGraw-Hill/IrwinEconomics 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 ($) D
D
S
S
9
5.00
6.00
8.5 9.25
3 - 11
McGraw-Hill/IrwinEconomics of Social Issues, 17/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Alternative Analysis of the Minimum Wage
Quantity (thousands of hours per week)
Wage rate ($) D
D
S
S
9
5.00
6.00
