Economics: Principles & Policy
14th Edition
ISBN: 9781337912679
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning US
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Chapter 11, Problem 5DQ
To determine
The
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In a market economy, what mechanism
determines the price and quantity of goods.
sold?
A) Government Regulations
B) Supply and Demand
C) Corporate Decision-Making
D) International Trade Agreements
(a) Assume that the markets for sugar cane, rum, and whiskey are initially in equilibrium (i.e., supply equals demand in each case). Assume further that a good harvest impacts the world’s sugar cane crop. Sugar cane is a principal ingredient in rum, but it is not an ingredient in whiskey. Rum and whiskey are substitutes for consumption.
(i) Discuss the impact of the good harvest on each of the three markets.
(ii) Discuss the effect on the markets for each of the three products if the government implements a price restriction in the sugar cane market with the aim of protecting the farmers. How will this impact the revenues for sugar growers, rum producers, and whiskey producers?
(b) Identify a newspaper article that illustrates a market failure in your assigned Caribbean country. Ensure that you provide a screenshot of the article in your submission. NOTE: Only the following market failures should be examined: public good, asymmetric information, positive or negative…
List the first eight assumptions of the free market.
Chapter 11 Solutions
Economics: Principles & Policy
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- You have learned that the Law of Supply and Demand determines prices in a free-market system. Using a concrete example, describe how the Law of supply and demand works. (Hint: think about seasonal items or holiday-specific popular items, for instance).arrow_forwardQUESTION 38 38. Which of the following statements referring to economic jargon is TRUE? a "free good" is one which is so abundant that there is enough to satisfy all that people may want of it. "scarcity" arises from assumptions of unlimited human wants and limited resources. a "scarce good" is one for which quantity demanded is less than quantity supplied. all the above are true only (a) and (b) above are true.arrow_forwardDuring natural disasters such as the flooding in Burma one policy choice is to do nothing, i.e. let prices rise and fall according to increases and decreases in supply and demand. A second policy choice is to interfere in the market, regulate prices, and prevent the price of goods such as corrugated steel roofing, gasoline, nails, water, food, etc. from rising. The argument frequently made to justify regulating prices is that owners of scarce goods are taking advantage of people in need----taking advantage of innocent people's misfortunes to steal their money and enrich themselves. This is immoral behaviour and should not be allowed. This second policy usually includes a reliance on government rather than the free market to bring in supplies of scarce goods and distribute them for free or at below market prices to alleviate shortages.arrow_forward
- After defining a ‘market mechanism’ and the ‘law of supply and demand’, explain how higher education can be affected by market changes, and how economic theory can understand such changes (Duff, 1997).arrow_forwardI need help with this question! How can I draw a model for it?arrow_forwardGenerally speaking, what must occur in order for demand to shift? Supply to shift? How does the concept of the invisible hand help explain how markets reach equilibrium?arrow_forward
- In the basic supply-and-demand model, a buyer only purchases a good when? if the price is lower than it was previously. if the price of the good covers the producers’ costs of production. if the price is less than they are willing to pay. if doing so increases the well-being of society. if they are forced to do so.arrow_forwardHello. Could someone explain to me how demand and supply works in economicsarrow_forwardIn your own words, explain the function(s) of prices in market economies. If a society did not have prices, what challenges would they face?arrow_forward
- An alternative way of thinking about the forces that cause markets to equlibrate in the real world is to think of markets reallocating the good from low to high valued use. Or to think of how the action of buyers and sellers engaging in mutually beneficial voluntary exchange (market forces) reallocates legal ownership or the physical location of the good from low to high valued used. Consider the demand at a price of $9. Look at the image below. multiple answers may be correct.arrow_forwardIn 1983, the Reagan Administration introduced a new agricultural program called the Payment-in-Kind Program. To see how the program worked, let's consider the wheat market. a.) Suppose the demand function is QD = 28 2P and the supply function is Qs = 4 +4P, where P is the price of wheat in dollars per bushel, and is the quantity in billions of bushels. Find the free-market equilibrium price and quantity, and depict this market graphically. b.) Now suppose the government wants to lower the supply of wheat by 25% from the free-market equilibrium by paying farmers to withdraw land from production. However, the payment is mad in wheat rather than in dollars-hence the name of the program. The wheat comes from vast government reserves accumulated from previous price support programs. The amount of wheat paid i equal to the amount that could have been harvested on the land withdrawn from production (but is instead given to the farmers for free). Farmers are free to sell this wheat on the…arrow_forwardWhat are some markets (goods or services) where an equilibrium might not be the most desirable point? Meaning, if left alone, the market produces too much or too little compared to societal needs.arrow_forward
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