2-3 Recall our discussion of price gauging of necessities during natural disasters. a) Briefly describe what a price ceiling is and when it can be considered binding and not binding. b) When do you think the government should consider a price gauging law, use an example to explain why it is important. Use graphs to explain. c) What problems can arise from imposing a price ceiling?
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- Use the accompanying graph to answer these questions. 20 S sº Price of X ($) 18 16 14 12 10 8 6 4 2 0 1 2 3 4 Quantity of Good X units 5 6 D a. Suppose demand is D and supply is SO. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price? Shortage: Full economic price: $ b. Suppose demand is D and supply is SO. If a price floor of $12 is imposed, what is the resulting surplus? What is the cost to the government of purchasing any and all unsold units? Surplus: Cost to government: $ c. Suppose demand is D and supply is so so that equilibrium price is $10. If an excise tax of $6 is imposed on this product, what happens to the equilibrium price paid by consumers? The price received by producers? The number of units sold? Fauilibrium price paid by consumers $12. In Application Question 5 of Chapter 3, we examined the market for DVDs where the supply and demand curves are given by Q = 3P and Q = 60-2P, respectively. Refer to the following diagram. $ 59 30 50 S Price 12 0 36 Quantity 60 (a) If the government imposes a price ceiling of $5 in this market, what will happen to the positions of the demand and supply curves? (b) Calculate the consumer surplus at the equilibrium price. (c) Calculate the producer surplus at the equilibrium price. Now suppose that a $6 per unit maximum price is imposed in this market. The diagram shows the impact on quantity demanded and quantity supplied. (d) Calculate the consumer surplus. (Careful!) (e) Calculate the producer surplus. (f) Calculate the deadweight loss.Suppose that policy makers are concerned that the price of corn may get too low. The market for corn is depicted in the accompanying diagram. a. What type of price control would policy makers use to keep the price of corn from getting too low? O a price floor a price ceiling a price marker a price war O a price wall b. Suppose that the government implements the price control that you have selected. Which of these prices would be binding? 10 9 8 7 Price ($) 6 5 4 3 0 2 0 1 Supply Demand 2 3 4 5 6 7 8 Quantity (in thousands of kilograms) 9 10
- ⒸMacmillan Learning (Figure: Market for Sustainable Furniture) Consider the market for furniture made from sustainable, man-made forests that is shown in the figure. The government wants to encourage buyers to buy such furniture and places a price ceiling of $250 thousand pieces of on the market. The market quantity actually sold after implementation of the price ceiling is furniture.T Price ($ per piece of fumiture) $350 $250 $100 Ⓒ700 300 O 500 350 300 500 Supply Demand 700 Quantity of fumiture pieces (thousands)1. If the equilibrium price of gasoline is $3.00/gallon and the government places a price ceiling on Gasoline at $ 4.00/gallon, the result will e a shortage of gasoline. True or False 2. A price ceiling set below the equilibrium price causes a surplus. True or False 3. A price set above the equilibrium price is a binding constraint. True or False 4. The shortage of housing caused by a binding rent control is likely to be more severe in the long run When compared to the short run. True or False3. The figure to the right illustrates the market for apples in which the government has imposed a price floor of $13 per crate. 20- 18- How many crates of apples will be sold after the price floor has been imposed? per year. (Enter your response as an integer.) 16- million crates of apples Supply 14- Will there be a shortage or surplus? If there is a shortage or surplus, how large will it be? 12- 10- There will be a (1). million crates of apples per year. (Enter your response as an integer.) 8- of 6- 4- Will apple producers benefit from the price floor? 24 Demand OA Apple producers who are able to sell their apples at the $13 price per crate will beneft. O B. Appie producers who are not able to sell their apples will not benefit. OC. Total revenue for apple producers as a group will decrease from $220 million to $208 million. 8 12 16 20 24 28 32 36 40 Quantity (millions of crates per year) 4. O D. Both a and b. OE All of the above (1) O nhortage O surplus Price
- It is an illegal market that emerges when binding and nonbinding price controls are in place. It is an illegal market that emerges when binding price ceilings are in place. O It is an illegal market that emerges when binding price floors are in place. It is an illegal market that emerges when only binding price ceilings and binding price floors are in place.. It is an illegal market that em erges when no price controls are present. Save Question 10 You would expect there to be many customers for a black market good when the opportunity cost of finding the good under a: O binding price floor is high. binding price floor is low. nonbinding price ceiling is high. binding price ceiling is low. binding price ceiling is high.1. Consider the following policies, each of which is aimed at reducing violent crime by reducing the use of guns. Illustrate by demand and supply diagrams followed with an explanation the effect of each of these proposed policies. [Hint: For each question, show the price paid by consumers, the price received by producers, and the quantity of guns sold, the difference between the price paid by consumers and the price received by producers, has the number of guns sold increased or decreased] A tax on gun buyers а. b. A tax on gun sellers A binding price floor on guns с. d. A tax on gun ammunitionQuestion 2 The demand and supply of widgets is given belowQ is quantity, and P is price of widgets Q-1000-2P Q-500+3P aHow much is equilibrium quantity and equilibrium price (show me your work) bIf there is a price control of $50 imposed by the government for widgets, how much shortage is there in the economyWhat type of price control is this called? c. Draw the Demand and Supply graphsshow equilibrium pricequantity points and on the same graph show price control points
- Figure 6-2 Price $20- 18- 16- 14 12 10 8- 6- 2 10 20 30 40 50 60 70 80 90 100 Quantity Refer to Figure 6-2. If the government imposes a binding price ceiling of $8 in this market, what is the result? a. a shortage of 20 units b. a surplus of 40 units C. d. a surplus of 20 units a shortage of 40 units XPrice 86 S 4 3 2 1 S 05 10 15 20 25 30 35 40 45 50 55 60 65 Quantity per period Select one: D Refer to the graph above to answer this question. If the government imposes an effective price ceiling of $3, what will be the illegal market price and quantity traded in the market? A. $5 and 30 units. B. $7 and 25 units. C. $6 and 40 units. D. $7 and 35 units.6. Price Controls Draw a graph for each of the following situations. Indicate the price that the market will eventually arrive at, the quantity demanded, and the quantity supplied. Note whether there is a shortage or surplus. a. Market with a binding price ceiling. b. Market with a non-binding price floor.