In the last two chapters we have developed the demand-and-supply
model. Now we are going to use that model to look at some government
policies that intervene in a market to control either price or quantity.
Examples of this type of policy include minimum wages, rent controls,
and output quotas. Our demand-and-supply model will allow us to
analyze how these types of policies affect equilibrium price and quantity
and how they affect both consumers and producers.
An important economic concept that we will study in more detail in later
chapters is the “efficiency” of markets. We will introduce this concept in
this chapter and see what it means to maximize “economic surplus” for
society as a whole. Finally, we will look at how government policies that
intervene in markets can influence the efficiency of those markets.