Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 10, Problem 11Q
To determine
Definition of black market, types of goods traded in it and the problems posed by it.
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What are three reasons that a government might want to intervene in markets?
1) Why do some price controls help create black markets?
2) What is a black market you have personally seen?
Why do some price controls help create black markets?
Chapter 10 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- The demand and supply of widgets is given below. Q is quantity, and P is price of widgets Q = 5000 – 6P Q = 1000 + 2P How much is equilibrium quantity and equilibrium price (show me your work) If there is a price control of $700 imposed by the government for widgets. What type of price control is this called? Does this type of price control cause a shortage or surplus, and how much is it. Draw the Demand and Supply, and show the point for part a and b.arrow_forwardThe following graph shows equilibrium in a free market, with equilibrium quantity of QE. PRICE QUANTITY Supply Demand For any level of output below QE, a buyer values a unit of goods in this market S the unit will cost a seller. Suppose now that a firm that produces for this market hires a private security force, reducing crime not only in their factory, but also in the small town in which it is located. This is an example of due toarrow_forwardWhen a market is competitive and functioning properly, economic theory predicts that the market equilibrium will be efficient. However, this may not always be the desired outcome. Market outcomes may be unequal or distorted by market failure. Offer an example of a market where you consider the real-world outcome to be unacceptable. Why is the market outcome unacceptable? How can government policy improve on the market equilibrium? Will this solution create a surplus or shortage in the market according to economic theory? Explain. What effect will this solution have on consumer surplus, producer surplus, social surplus, and deadweight loss? Explain.arrow_forward
- Based on your opinion, and what was discussed in the textbook, do you think it makes sense for the government to alter prices in a market using price ceilings (such as rent control) and price floors (such as minimum wage or maintaining a high price for agricultural productsarrow_forwardHow to draw a graph to show the demand for face masks in the USA against the coronavirus? How to draw a price ceiling graph to show government intervention to stop the high prices on masks sales?arrow_forwardWhat is the black market you have personally seen?arrow_forward
- In 1994, 565 economists sent President Bill Clinton a letter warning against the economic consequences of price controls that played such a prominent role in his healthcare reform plan. The price controls included mandated fee schedules for a fee for service medical plans, perspective budgets for regional health alliances, increases in health insurance premiums tied to the cost of living, and price ceilings on prescription drugs. Discuss the economics of price controls. Under what circumstances do they accomplish their intended purpose? When do they fail?arrow_forwardThe following graph shows the market for milk. The market price of milk without government intervention is____________per gallon. Consider the legislation that doesn't allow the price of milk to be below $8 per gallon and stimulates that the government by any surplus milk produced at that price. In order to raise the price of $8 per gallon, the government would need to buy______million gallons of milk, which would cost the government__________million. Suppose there are only a few dairy Farmers who would benefit from this legislation and millions of consumers who would suffer through higher prices. In this case, legislation imposing price supports at $8 per gallon would mean which of the following? The legislation will probably pass because it's benefits are concentrated while it's cost or widespread. The legislation should pass because it's economical efficient, but it probably won't because consumers don't understand enough about economics. The legislation may or may not pass since…arrow_forwardConsider a market for rides (as in the market that Uber operates). Demand for rides is given by QD=120-2P. Supply of rides by drivers is given by Qs=10P. The equilibrium price in this market is The consumer surplus is The producer surplus is goes to drivers and some to Uber. The total surplus is ✓. Note that producer surplus is calculated in the standard way. Some of it Suppose now that Uber sets the price of a ride at $12. The quantity of rides in the market is now The consumer surplus is now The producer surplus is now ✓ (still calculated in the standard way). Assuming Uber's revenue is 20% of ride revenue, their revenue at the equilibrium price is price of $12 is ✓ and at aarrow_forward
- Would society be better or worse off if the price ceiling was imposed in the market? Please explain with the aid of a graph.arrow_forwardSteve decides not to rent out his second home since he is not allowed to set the rate above $1000 per month even though he knows he could find renters willing to pay much more. Would this be an example of a price ceiling or a black market?arrow_forwardDiscuss how the equilibrium price and quantity change when a change in demand occurs and the supply stays constant, and when a change in supply occurs and the demand stays constant. How do price controls affect the market? Provide a real-world example that takes consumer surplus and producer surplus into consideration.arrow_forward
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