Macroeconomics: Private and Public Choice
15th Edition
ISBN: 9781285453545
Author: Russell Sobel; Richard Stroup; James Gwartney; David Macpherson
Publisher: South-Western College Pub
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Chapter 4, Problem 4CQ
To determine
Explain the
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How does an effective price ceiling affect the quantity demanded and the quantity
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What is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price, where must price ceilings and price floors be set to have an impact on the market.
The graph below shows a price ceiling that happens to lie exactly at the equilibrium price. Drag the price ceiling line (Pceil) away from
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Macroeconomics: Private and Public Choice
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- If the quantity exchanged in a market is greater than the equilibrium quantity, then the supply price is greater than the demand price. Explain why.arrow_forwardSuppose the government forces the price to be above the equilibrium. Is this called a price floor or a price ceiling? Explain why the government might do this and the likely economic impact of the price floor or ceiling. Then, explain how market forces will attempt to move the market price to equilibrium.arrow_forwardMacmillan Learning For this question, it would probably be very helpful for you to sketch the market on a separate piece of paper to help you. A market is characterized by the equations below: P = 200 - 2Q P = 5+3Q Suppose a price floor of $140 is imposed on this market Is this price floor a binding price floor or a non-binding price floor? binding price floor non-binding price floor What is the quantity demanded at this price floor? Qd= What is the quantity supplied at this price floor? Qs=arrow_forward
- Complete the following table by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it results in a shortage or a surplus or has no effect on the price and quantity that prevail in the market. The government has instituted a legal minimum price of $2.30 per gallon for milk. The government prohibits grocery stores from selling milk for more than $2.30 per gallon. Due to new regulations, grocery stores that would like to pay better wages in order to hire more workers are prohibited from paying more than $16.50 per hour.arrow_forwardGiven the following table, plot the demand and supply curves for cheese. Price Quantity Demanded Quantity Supplied $7 5 15 5 10 10 3 15 5 Would $3 be considered an effective (i.e., binding) price ceiling? With an effective price ceiling, what will happen to the market for cheese? Be specific. If the price ceiling was removed from the model, what will happen to price, quantity demanded, and quantity supplied? Be specific. What effect would a $7 price ceiling have on this market? What price and quantity will show up in the market?arrow_forwardWhat will happen in a market where the equilibrium price is $5 and a price ceiling of $4 is enacted? What about a price floor of $4?arrow_forward
- Suppose demand and supply are given by Qd = 60 - P and QS = P - 20. a. What are the equilibrium quantity and price in this market? Equilibrium quantity: 20 Equilibrium price: $ 40 b. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus if a price floor of $50 is imposed in this market. Quantity demanded: Quantity supplied: 32 Surplus: 24 c. Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of $32 is imposed in the market. Also, determine the full economic price paid by consumers. Quantity demanded: 25 x Quantity supplied: 15 Shortage: 10 x 8 x Full economic price: $ 45 xarrow_forwardA low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. The conditions of demand and supply are given in Exhibit 10. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage if the price ceiling is set at $2.40? At $2.00? At $3.60? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 Exhibit 10. Demand and Supply of Bread in Low-Income Countryarrow_forwardExplain what would be likely to happen if the government placed a price floor on milk. Suppose that the price of milk is $4/gallon, and the government prohibits anyone from selling milk for less than $5/gallon. Your answer should consist of a complete well-written paragraph using complete sentences as well as a supply and demand diagram.arrow_forward
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