The document discusses various markets and how they are affected by government intervention through policies like price controls, minimum wages, subsidies, quotas, and taxes. It addresses housing and labor markets under rent controls and minimum wages. It introduces concepts like price floors, shortage, black markets, deadweight loss, and potential loss from job search. Government policies aimed at agriculture through subsidies and quotas are examined. Markets for illegal goods and the impact of taxes on drugs are also summarized.

1. Markets in
action
Macroeconomic
Foundation
Alaleh Mani
2011

2. Turbulent Time
 House Price after natural disaster
 Agriculture crisis(drought, flood,…)
 Illegal activities (drugs, copy write,…)
 Black Market
 Labor Wages
 War for natural resources

3. Housing Market and Rent
ceiling
Dollars of
rent
LRS
Quantity After earth quack in San
Francisco
Demand remain same as before

4. Regulated Housing Market
 Price ceiling = Rent Ceiling=regulation
 It is effective when force of Market law
and regulation law are in conflict
 It is effective when RC<Pe

5. Gray Shade Illegal Region

6. Search activity and Black
Market
 Search activity=TIME to search someone to
do business with or alternative choice
 Shortage cause a desire to search activity
 Black Market is for those buyer and seller who
seek higher price
 Landlord charge for worthless fitting or Key
Money (extra charge for new key and locks)
(schweser 2008 Dec)
 Level of black Market == how tightly is price
ceiling (schweser 2008 Jun)

7. Inefficiency
 DWLand Loss fromEstimation of potential loss from search activi
search activity (CFA
book 2009)

8. Not Fair
 Rules are not fair due to not voluntary
exchange
 Result are not fair due to DWL and search
Loss
 Rent ceiling create more shortage
 History rent ceiling in practice failed In
London after wwII in SF after Earthquake

9. Labor Market and minimum
wage
 Laborsaving technology is the main shock
(telephone operator, low skilled farmer)
Innovation ,Technology
Perfectly elastic
Perfectly elastic

10.  The adjustment time ≈ elasticity of supply
(CFA Exam June 2007)
 On Job Training occurs while Labor supply
is decreasing (CFA Exam June 2008)
 Long run Low skilled Market is a
competitive Market (Schweser 2009)
easy get in and get out
great number of participant.

11. Minimum Wage effect
 Pricefloor=minimum wage=regulation
 Minimum wage is effective if is in conflict
with market force
 effective Minimum wage>Pe

12. Illegal Region

13. Potential loss from
job search (cfa
Inefficiency book 2009)

14. Human Capital has different
behavior
 Minimum wage cause unemployment?
OR:
 It encourages productivity?
 It prevents labors to quit?
 Firm anticipation on increasing wage
make them fire more?
 What about increasing population?
(advocating proof)

15. Living Wage Law
 a minimum wage
 30%(Wage /hour)* ((40)hours/week ))*(4
weeks)=(housing rent/month)
 Two type of question:
 If house rent =x how much living wage should be
 Living wage definition

16. Sales Tax
full
Buyer
Less than
Sales Tax full
seller full
Less than
full

17. Tax incident
Social Security
full
employer
Social Less than full
Security Tax
employee full
Less than full

18. Tax on seller and buyer
differences
 How the tax burden is distributed between buyers and
sellers of a product?
 Is the distribution of tax burden the same if the tax is
imposed on consumption or production?
D with tax

19. Buyer payment-seller
receive=gov tax income
Size of wedge
is important
not side of tax

20. Tax and Elasticity

21. Tax and efficiency

22. Subsidies and Quotas
Harvest demand supply curve
 1. Market supply is perfectly elastic due to
momentary supply curve
 2. agricultures have inelastic Social
demand
Individual Farmer income
decrease

23. Harvest and Revenue

24. Government intervention
 Subsidies
 Quotas
 Price Floor (minimum wage)

25. Subsidies :DWL cause Inefficient use of scarce resources
DWL
Over Production

26. Quotas: Upper limit of Quantity to be produced  Underproduction inefficient
sugar, tobacco, cotton and imports
tiny little increase in production brings good profit for one producer while more than
that vanish it totally
Price rises
Cost falls
Illegal region
Quantity decrease

27. Market for Illegal goods
+CBL
CBL to buyer
CBL to seller
-CBL
Quantity of illegal good

28. Tax on Drugs
 Since Cost of Break the law should be high
 Therefore Police need to afford the cost of
enforcing law so what bout
 Imposing tax :
1.income tax use in education and enforcing law
2.Imposing tax cause a bad feeling of drug
advocating