EBK ESSENTIALS OF ECONOMICS
7th Edition
ISBN: 8220102452107
Author: Mankiw
Publisher: CENGAGE L
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Chapter 6, Problem 1PA
To determine
The impact of
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Suppliers of breakfast cereal persuade the government to impose a binding price floor of $5 per box of cereal. As a result of this policy, do more
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Governments often attempt to boost the income of some agricultural producers with a variety of policies. We will discuss this in depth later in the course, but two approaches often discussed in introductory economics courses are quotas and production subsidies. Using basic supply and demand analysis, discuss how these policies work with emphasis on their similarities and differences. Does the elasticity of demand matter when comparing the policies?
What will be the result of an decrease in a price ceiling for gasoline?
Group of answer choices
The quantity will decrease because the quantity demanded will decrease.
The quantity will remain the same; only the price will change.
The quantity will increase because the quantity demanded will increase.
The quantity will decrease because the quantity supplied will decrease.
Chapter 6 Solutions
EBK ESSENTIALS OF ECONOMICS
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- What is the effect of a $1 specific tax collected from producers on equilibrium price and quantity if supply is perfectly inelastic? Price increases by $1 and quantity is unchangedarrow_forwardAt the current market equilibrium, the price elasticity of supply for a certain good is much lower than the price elasticity of demand. if the government imposes a $5 specific tax on this good, who will bear more of the burden of the tax?arrow_forwardPlease answer c and d and explain the answers. Thank you so mucharrow_forward
- Let’s say that Marianne is a politician who promises cheaper gasoline for everyone in the country if she is elected. Once she is elected, she makes gas cheaper by imposing a price ceiling that is one full dollar less than the market’s equilibrium price. What would be the reaction of the sellers of gasoline and of the public to Marianne’s price ceiling law?arrow_forwardDemand and supply in the banjo market are Qd = 10 - P and Qs=P. Suppose the government wants to make banjos more affordable and sets a price ceiling at P = 8. The deadweight loss from the price ceiling isarrow_forwardAt the current market equilibrium, the price elasticity of demand for a certain good is much higher than the price elasticity of supply. If the government imposes a $2 specific tax on this good, who will bear more of the burden of the tax? Illustrate.arrow_forward
- The equilibrium price in a market is $60. A tax is placed on this market that results in buyers paying $65 and sellers only getting to keep $40 of that. Which of the following is definitely true based on this information? Buyers and sellers have the same elasticity. The statutory burden of the tax is on the sellers The size of the tax is $15. Sellers have a more elastic response to this tax. The size of the tax is $20. Buyers have a more elastic response to this tax. If 25 units of this good were sold before the tax was imposed and 20 units were sold after the tax was imposed, how much tax revenue does the government collect? Tax revenue: $ If the purpose of this tax was to correct an externality, what kind of externality might it have been, and what was the per unit size of the externality? positive consumption externality; $15 negative production externality; $20 positive consumption externality; $25 negative consumption externality; $25arrow_forwardA small decrease in a production quota will have a large impact on the support price if: (Please provide the answer along with graph(if possible) the reason in detail) What does it mean by decrease in quota? A) demand is completely elastic. B) demand is highly (but not completely) elastic. C) demand is inelastic.arrow_forwardUse two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges.arrow_forward
- A market is described by the following supply and demand curves: QS = 3P QD = 400−P The equilibrium price is $ and the equilibrium quantity is . Suppose the government imposes a price ceiling of $120. This price ceiling is , and the market price will be $ . The quantity supplied will be , and the quantity demanded will be . Therefore, a price ceiling of $120 will result in . Suppose the government imposes a price floor of $120. This price floor is , and the market price will be $ . The quantity supplied will be and the quantity demanded will be . Therefore, a price floor of $120 will result in . Instead of a price control, the government levies a tax on producers of $40. As a result, the new supply curve is:arrow_forwardGiven the following information QD = 240-5p QS = P Where QD is the quantity demanded, Qs is the quantity supplied and P is the price. Suppose that the government decides to impose a tax of $12 per unit on sellers in the market. Determine: Quantity after taxarrow_forwardConsider a market with a demand curve of P=10-Q and a supply curve of P=Q. Before the imposition of a tax, equilibrium quantity is 5, and equilibrium price is $5 (verify this). If a tax of $5 per unit is placed on this market, quantity traded falls to 2.5 units. What is the tax revenue generated?arrow_forward
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