Microeconomics

• In the spring of 2008, a worldwide food shortage caused food prices to skyrocket.
• In just a few months, the prices of wheat, rice, and corn shot up as much as 140 percent.
• The number of people living on food stamps in the United States rose to the highest level since the 1960s due to the food shortage.
• Low-income Americans faced tough choices as the prices of basics like eggs and dairy products rose due to the food shortage.
• Many people gave up meat and fresh fruit due to the food shortage.
• Rising food prices caused trouble all over the world.
• In Côte d’Ivoire, two days of violence persuaded the government to postpone planned elections due to the food shortage.
• In Haiti, protesters chanting “We’re hungry” forced the prime minister to resign due to the food shortage.
• In Cameroon, 24 people were killed in riots due to the food shortage.
• A tax on sellers does not affect demand
• A tax on sellers decreases supply
• A tax on sellers causes the equilibrium price to rise and the quantity demanded to fall
• Subsidy will increase consumption the most in the scenario of elastic demand and inelastic supply.
• Government revenues will be the highest in the scenario of inelastic demand and inelastic supply.
• In Egypt, President Mubarak ordered the army to start baking bread due to the food shortage.
• Price control: A regulation that sets a maximum or minimum legal price for a particular good.
• Government intervention in markets can have both positive and normative effects.
• Price ceilings can create shortages in the market.
• Price controls can be used to ensure affordability of basic necessities.
• Price ceiling: A maximum legal price at which a good can be sold.
• The tax causes deadweight loss, as the value of the revenue collected is always less than the reduction in total surplus caused by the tax.
• The incidence of a tax is determined by the relative elasticity of the supply and demand curves.
• The government receives revenue equal to the amount of the tax multiplied by the new equilibrium quantity.
• The burden of a tax is shared between buyers and sellers, but the distribution of the burden can vary.
• In the Philippines, hoarding rice was made punishable by life imprisonment due to the food shortage.
• A price floor reduces total surplus and creates deadweight loss.
• Consumers will be unhappy because they are getting less milk at a higher price.
• The government has to pay for the subsidy, which is equal to the amount of the subsidy multiplied by the new equilibrium quantity.
• A subsidy increases the equilibrium quantity, lowers the price paid by buyers, and increases the price received by sellers.
• The benefits of a subsidy are split between buyers and sellers based on the relative elasticity of the demand and supply curves.
• In a competitive market, it doesn't matter who receives the subsidy in terms of deserving it more.
• The side of the market that is more price elastic receives more of the benefit.
• A tax or subsidy has a greater effect on the equilibrium quantity if the supply or demand is more elastic.
• Producers who cannot sell all their milk due to decreased demand will be unhappy.
• The allocation of scarce goods due to a price ceiling can be done in various ways, such as equal rationing, first-come, first-served basis, government preference, or bribery
• The government may choose to buy up excess supply to support producers.
• Deadweight loss occurs when the quantity of a good bought and sold is below the market equilibrium quantity
• Producers benefit from a price floor at the expense of consumers.
• A price ceiling causes producer surplus to fall
• The government will have to buy the entire amount of excess supply created by the price floor.