Chapter Summary

This chapter has reviewed three kinds of applications of the theory of competitive equilibria:

rent control: We observe that rent controls are inefficient and do not eliminate the excess demand for apartments, but rather make it worse in the long run.
cobweb cycles: We observe that, when supply lags behind the decision to produce, and the current price is the main basis for the decision, a tendency toward cycles can result in which high prices and low output alternate with low prices and high output. This has applications to agricultural markets, but also to markets for computer chips and chemical engineers.
The "Farm Problem": We observe that government attempts to maintain farm income by means of supporting farm prices have caused problems, and "farm policy" has largely consisted in finding ways to minimize the cost and problems.

More generally, we may expect that attempts to legislate prices in the face of competitive markets will generally be problematic at best, although the details will differ from one market to another. More generally still, we observe that the theory of supply and demand can be applied to practical issues and problems, not only when the price and output are determined by the intersection of supply and demand, but also when public policy or other impediments interfere with that equilibrium.

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