short-run versus long-run
- long run lets consumers/producers fully adjust to price change
- demand - more price elastic in long run
- consumers adjust habits over time
- linked to another good that changes over time, more substitutes available later (knock-offs, competition)
- short term - durable goods >> consumers hold onto >> no need to replace >> less demand
- no new purchases >> less consumption in short run
- over long term, will still need to be replaced >> more elastic
- supply - percentage change in quantity supplied due to price change
- same concept as demand elasticity
- materials shortage >> bottlenecked production >> low elasticity (capacity constraint)
- easy to get capital/labor/materials >> high elasticity (long run pattern)
- durable goods >> can be refabricated >> smaller long-run elasticity
price controls - price ceiling/minimum set by organization (usually gov’t)
- ceiling below equilibrium >> excess demand
- normally, suppliers would raise money, but can’t in this situation
- could drive price above market price (ceiling) through auction, bribes
- minimum (floor) below equilibrium >> no effect
- ceiling above equilibrium >> no effect
- minimum (floor) above equilibrium >> excess supply
- excess demand - difference in quantity of demand and quantity of supply, calculated at the price ceiling
- price ceiling
- equilibrium can't be reached
- at price ceiling, quantity demanded exceeds quantity supplied
- suppliers not allowed to raise prices (legally)
- price floor
- equilibrium can't be reached
- at price floor, quantity supplied exceeds quantity demanded
- suppliers can't lower prices
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