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Referring to question 2: Suppose the government imposes a $40 price floor.  If this price floor is binding, it would lead to a ____ of _____ units of output in the market.   Group of answer choices   shortage; 100 shortage; 200 surplus; 100 surplus; 200

Referring to question 2: Suppose the government imposes a $40 price floor.  If this price floor is binding, it would lead to a ____ of _____ units of output in the market.   Group of answer choices   shortage; 100 shortage; 200 surplus; 100 surplus; 200

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Referring to question 2: Suppose the government imposes a $40 price floor.  If this price floor is binding, it would lead to a ____ of _____ units of output in the market.
 
Group of answer choices
 
shortage; 100
shortage; 200
surplus; 100
surplus; 200
**Chapter 4: Market Efficiency, Market Failure, and Government Intervention** **Handout 4-1 (continued)** 3) Assess the impact of the price floor on the market. --- In this section, students are encouraged to evaluate the consequences of implementing a price floor within a market. A price floor sets a minimum price at which goods or services can be sold, often leading to surplus if set above equilibrium. Consider how this affects producers, consumers, and overall market efficiency.
Transcribed Image Text:**Chapter 4: Market Efficiency, Market Failure, and Government Intervention** **Handout 4-1 (continued)** 3) Assess the impact of the price floor on the market. --- In this section, students are encouraged to evaluate the consequences of implementing a price floor within a market. A price floor sets a minimum price at which goods or services can be sold, often leading to surplus if set above equilibrium. Consider how this affects producers, consumers, and overall market efficiency.
### Analyzing the Effect of a Price Floor on Consumer and Producer Surplus The figure illustrates a market in equilibrium. Use the figure to answer the following questions: 1) **Suppose that each notch along the vertical axis represents a $10 increment, so that \( P_0 \) is $30. Suppose also that each notch along the horizontal axis represents 100 units of quantity, so that \( Q_0 \) is 300. Calculate the amounts of consumer and producer surplus in the market.** 2) **Suppose that the government imposes a price floor of $40. Illustrate the price floor on the graph and recalculate the amount of consumer surplus. Evaluate the change in producer surplus.** #### Diagram Explanation: - **Axes and Lines**: - The vertical axis represents price, increasing in $10 increments. - The horizontal axis represents quantity, increasing in 100 unit increments. - The supply curve is labeled \( S_0 \), and the demand curve is labeled \( D_0 \). - The equilibrium is marked at the intersection of the supply and demand curves, labeled \( e \), at price \( P_0 \) and quantity \( Q_0 \). - **Equilibrium Point**: - The equilibrium price (\( P_0 \)) is $30. - The equilibrium quantity (\( Q_0 \)) is 300 units. - **Impact of Price Floor**: - A price floor above the equilibrium level will decrease consumer surplus and potentially increase or decrease producer surplus, depending on the elasticity of the supply and demand curves. - The new price floor is set at $40, which is higher than the equilibrium price. This setup is used to explore the impact of government interventions in the market, specifically through the mechanism of a price floor.
Transcribed Image Text:### Analyzing the Effect of a Price Floor on Consumer and Producer Surplus The figure illustrates a market in equilibrium. Use the figure to answer the following questions: 1) **Suppose that each notch along the vertical axis represents a $10 increment, so that \( P_0 \) is $30. Suppose also that each notch along the horizontal axis represents 100 units of quantity, so that \( Q_0 \) is 300. Calculate the amounts of consumer and producer surplus in the market.** 2) **Suppose that the government imposes a price floor of $40. Illustrate the price floor on the graph and recalculate the amount of consumer surplus. Evaluate the change in producer surplus.** #### Diagram Explanation: - **Axes and Lines**: - The vertical axis represents price, increasing in $10 increments. - The horizontal axis represents quantity, increasing in 100 unit increments. - The supply curve is labeled \( S_0 \), and the demand curve is labeled \( D_0 \). - The equilibrium is marked at the intersection of the supply and demand curves, labeled \( e \), at price \( P_0 \) and quantity \( Q_0 \). - **Equilibrium Point**: - The equilibrium price (\( P_0 \)) is $30. - The equilibrium quantity (\( Q_0 \)) is 300 units. - **Impact of Price Floor**: - A price floor above the equilibrium level will decrease consumer surplus and potentially increase or decrease producer surplus, depending on the elasticity of the supply and demand curves. - The new price floor is set at $40, which is higher than the equilibrium price. This setup is used to explore the impact of government interventions in the market, specifically through the mechanism of a price floor.
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