Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 10, Problem 9P
(a)
To determine
Supply and
(b)
To determine
Change in supply curve when the quantity produced is restricted.
(c)
To determine
New
(d)
To determine
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It is common knowledge that some ✩
agricultural policies are about price
control, while others are about
quantity control.
a) The equilibrium price of wheat is
$5 per bushel and the equilibrium
quantity is 100 bushels. Draw a
wheat supply and demand graph
that shows the equilibrium in the
wheat market
b) Suppose the government adopts
a policy that prohibits farmers from
growing more than 80 bushels of
wheat in total. How would this
policy change the wheat supply
curve
c) What effects does the policy
mentioned in b) have on the
equilibrium price?
d) What are the consequences of
this policy
e) Fill in the table of the impact of
the production quota on the
surpluses
Consider a market that is initially in equilibrium and the equilibrium price and quantity are P and Q respectively. Then, the government decides to impose a price ceiling at a price of Pc that is less than P. Which of the following statements is correct?
1. After the price ceiling is imposed, the quantity demanded is less than the quantity supplied on the market.
2. After the price ceiling is imposed, the quantity actually sold in the market is lower than it was before the price ceiling was imposed.
3. Producer surplus in the market increased after the price ceiling was imposed.
4. Since Pc is less than P, the price ceiling is effective and therefore, there is no deadweight loss in the market.
a) In the market for sugary drinks, the current equilibrium price is $10 and the equilibrium quantity is 30. The demand choke price is $50 and the supply choke price is $5 (a) Draw a demand and supply diagram, and shade the regions that represent consumer and producer welfare. Calculate the Total welfare in this market
b) In this market, you now know that E D = −0.4 and E S = 1.2. Redraw your diagram in part (a) with the correct sloping curves. In this part you do not have to shade the welfare regions. All you need to do is redraw the diagram with the same equilibrium price and quantity, and choke prices but adjust the slope of each curve to reflect their respective elasticity
c) If a tax was to be implemented in this market, what percentage of the burden is borne by the buyer?
d) The government plans to discourage the consumption of sugary drinks and as such, they implemented a $1 tax on every bottle produced. In this situation, the suppliers are taxed directly but they hope to pass…
Chapter 10 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- A). Draw the supply and demand curves for the market of specific good. B). Suppose that the equilibrium price for this product is $4 and the equilibrium quantity is 100 units. If the government imposes a price ceiling of $3 what happens? Draw the new graph explaining how quantities are affected by that decision. C). Suppose that the equilibrium price for this product is $4 and the equilibrium quantity is 100 units. If the government imposes a price floor of $5 what happens? Draw the new graph explaining how quantities are affected by that decision.arrow_forwardHow does a tax on buyers affect the market equilibrium?arrow_forwardQuestion The below graph shows the market of air tickets per month with no Government intervention What are the Price and Quantity of Equilibrium? Calculate total Surplus at equilibrium. The government intervenes by setting a maximum price to be sold of 350$. What type of Price control is it? Who is it supposed to gain and lose from this intervention? Will this create a surplus or shortage? Calculatearrow_forward
- short note on subsidies? short note on price control?arrow_forwardWhat would happen to the equilibrium price and equilibrium quantity of a good after the government subsidized its production at the same time that demand increased? Explain.arrow_forwardSuppose the market demand for organic grass-fed beef is given by Q=100-2P and the supply is given by Q= P/2 (quantity is given in thousand pounds). A) Find the equilibrium price of a pound of beef and the equilibrium quantity. B) Find the consumer surplus (CS) and producer surplus (PS) at the market equilibrium point. C) How will the equilibrium change if the government imposes a price ceiling of $20/pound? D) Show this market with the price ceiling in a supply and demand graph. E) Consider that the consumers who bought the beef at $20/pound are the ones with the highest willingness to pay (scenario 1), what is the new consumer surplus (CSnew) and the new producer surplus (PSnew)? F) What is the deadweight loss (DWL) after the price ceiling in scenario 1? G) What would happen in this market if, instead, the consumers who bought the beef were the ones with the lowest willingness to pay (scenario 2)? (Hint: You don’t have to show it mathematically, or graphically, but write…arrow_forward
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