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3a. You are told the initial value of the variable, and the percentage change. For each, compute the new

value of the variable. Show your work!

Initial Value Percentage Change New Value

100 12%

50 8%

9.

3b.Describe what will happen in the market in the following situations.. Will there be a

shortage or excess? A deadweight loss? if so, calculate the amounts.

a. the government establishes a price ceiling of $30 per bushel of wheat.

b. the government establishes a price ceiling of $10.

c. the government establishes a price floor of $30.

d. the government establishes a price floor of $10.

e. price and quantity in the market compared to the desired equilibrium? Identify an example of a price

floor.

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019

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Related questions

Question 1

During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

$30

$35

$40

Indeterminant with the given information.

2 points

Question 2

Which of the following is an example of a price floor?

A sale price with a limit on the quantity you can purchase.

Rent-controlled apartments

Predatory pricing designed to put a competitor out of business.

The minimum wage

2 points

Question 3

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

The Affordable Care Act

Minimum wage laws

Rent control laws

Communism

2 points

Question 4

Which of the following is a possible effect of a price ceiling?

A surplus of the good.

Increases in product quality.

Increased gains from trade.

People will waste time in lines waiting to purchase the good.

2 points

Question 5

What is a price ceiling?

A minimum price consumers are willing to pay.

A minimum price allowed by law.

A maximum price allowed by law.

A maximum price consumers are willing to pay.

2 points

Question 6

Why are the long lines generated by a shortage worse than paying a higher price in money?

It is not better or worse. Paying in time and paying in money are essentially the same in a market economy.

Paying with time reduces the value of money, and prevents valuable trades from occurring.

Waiting in line is a waste of a valuable resource: time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources.

Paying with time gives those who do not work an advantage over those who do.

2 points

Question 7

Which of the following is a possible effect of a price floor?

The quantity supplied exceeds the quantity demanded.

Increased gains from trade.

Decreases in product quality.

A shortage of the good.

You have been hired by a new firm selling electronic dog feeders. Your client has asked you to gather some data on the supply and demand for the feeder, which is given below, and address several questions regarding the supply and demand for these feeders.

Price/Feeder

Quantity Demanded

Quantity Supplied

$300

500

1800

270

600

1700

240

700

1600

210

800

1500

180

1000

1400

150

1100

1300

120

1200

1200

90

1300

1100

60

1400

1000

30

1500

900

10

1600

800
Ā  Ā  Ā 

Your client has asked that you develop a report addressing the following questions so that you can present these findings to their Board of Directors:

Questions:

  1. Construct a graph showing supply and demand in the electronic dog feeder market, using Microsoft Excel.

  2. How are the laws of supply and demand illustrated in this graph? Explain your answers.

  3. What is are the equilibrium price and quantity in this market?

  4. Assume that the government imposes a price floor of $180 in the feeder market. What would happen in this market?

  5. Assume that the price floor is removed and a price ceiling is imposed at $90. What would happen in this market?

  6. Now, assume that the price of feeders drops by 50%. How would this change impact the demand for feeders? Explain your answer and reconstruct the graph developed in question one to show this change.

  7. Assume that incomes of the consumers in this market increases. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change.

  8. Assume that the number of sellers decreases in this market. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change.

  9. Explain the difference between a normal good and an inferior good. Would your answers to question 7 change depending on whether this good is normal or inferior? depending on whether this good is normal or inferiorly?

Under a binding price ceiling, what does the change in consumer surplus represent?
A) The gain in surplus for those buyers who can still purchase the product at the lower price.
B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.

When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.

Compared to a tariff, an import quota, which restricts imports to the same amount as the tariff, will leave the country as a whole
A) worse off than a comparable tariff.
B) not as bad off as a comparable tariff.

C) about the same as a comparable tariff.

D) Any of the above can be true.

What is the welfare impact of a subsidy policy?
A) Producer surplus increases, consumer surplus declines, and total welfare declines.
B) Producer and consumer surplus increase, and these gains are larger than the government cost.

C) Producer and consumer surplus increase, and these gains are smaller than the government cost.

D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.

Why is there a deadweight loss associated with subsidy payments?
A) There is no deadweight loss from a subsidy.
B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced.
C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them.
D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.

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