Authors libby rittenberg 224

Crude oil and gasoline prices soared in 2008 and then fell back. We looked
at the causes of these increases as well as their impacts. Crude oil prices
rose in large part As a result of increased demand, particularly from China.
Higher prices for crude oil led to higher prices for gasoline. Those higher
prices not only hurt consumers of gasoline, they also put upward pressure
on the prices of a wide range of goods and services. Crude oil and gasoline
prices then decreased dramatically in the last part of 2008, as world
growth declined.
The model of demand and supply also explains the determination of stock
prices. The price per share of corporate stock reflects the market’s
estimate of the expected profitability of the firm. Any information about
the firm that causes potential buyers or current owners of corporate stock
to reevaluate how profitable they think the firm is, or will be, will cause the
equilibrium price of the stock to change.
We then examined markets in which some form of government price
control keeps price permanently above or below equilibrium. A price floor
leads to persistent surpluses because it is set above the equilibrium price,
whereas a price ceiling, because it is set below the equilibrium price, leads
to persistent shortages. We saw that interfering with the market
mechanism may solve one problem but often creates other problems at the
same time. We discussed what some of these unintended consequences
might be. For example, agricultural price floors aimed at boosting farm
income have also raised prices for consumers and cost taxpayers dearly,
and the bulk of government payments have gone to large farms. Rent
controls have lowered rents, but they have also reduced the quantity of
rental housing supplied, created shortages, and sometimes led to various

Attributed to Libby Rittenberg and Timothy Tregarthen
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