Explain why a binding price ceiling on a good is likely to cause misallocation of the consumption of the good among consumers, but not misallocation of the production of the good among firms.
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Explain why a binding
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- Consider a competitive market with a perfectly elastic supply curve and a perfectly inelastic demand curve. Suppose the price of an input that is required for the production of the good that is traded in this market increases. Suppose further that a positive quantity of the good is traded in equilibrium after the increase of the input price. One of the following statements is true. Which statement is true? The equilibrium quantity of the good traded in the competitive market after the increase of the input price is strictly higher than before the increase of the input price. A The equilibrium quantity of the good traded in the competitive market is the same before and after the increase of the input price. The equilibrium quantity of the good traded in the competitive market after the increase of the input price is strictly lower than before the increase of the input price. CAssume 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 in consumption. If the government implements a price restriction in the sugar cane market with the aim of protecting the farmers. Explain how will this impact the revenues for sugar growers, rum producers and whiskey producers?If a decrease in demand is smaller than a decrease in Supply, what happens to an equilibrium price and output sales?
- Consider a market that can be represented by a linear demand curve, Qc = 200 – 1.5 Pd, (where Qd is the quantity demanded and Pd is the price that demanders pay) and a linear supply curve that Qs = 2 Ps (where QS is the quantity supplied and PS is the price that suppliers get). What is the equilibrium price? (2 decimals)Assume that the demand and supply functions for each bottle of Beer ABC are. Quantity Demand= 1,000 – 400P Quantity Supply = 100P If a price ceiling is set at $2.50 for each bottle, what will be the impact on the market equilibrium? Any changes in quantity demand or quantity supplied?Suppose that the price of cricket match tickets at Mirpur stadium is determined by market forces. Currently, the demand and supply schedules are as follows:
- Suppose the supply curve for chicken taco sandwiches can be written as Qs = -10 + 5P and the demand curve can be written as Qd = 80 - 5P Now suppose the government institutes a price floor on chicken taco sandwiches, to discourage their consumption. They set the price floor at $10. How many chicken taco sandwiches will be bought and sold when this price floor is in place? (Hint: will the quantity traded be determined along the supply curve, the demand curve, or both in this case?) 30 50 20 40The graph below shows the supply and demand curves for soybeans at a time when the equilibrium price has dropped and agribusinesses are lobbying for stronger price supports. The price floor (Pflr) is currently set to be nonbinding. Adjust the floor by repositioning the Pflr line at a price that results in a surplus of 1.2 billion bushels. To refer to the graphing tutorial for this question type, please click here. Price ($ per bushel) 81 7.5 7 6.5 6 5.5 5 4.5 3.5 3 2.5 1.5 0.5 0 i i % S Pflr In D OP Quantity (billions of bushels)Consider the market for pizza in a large city. Assuming that pizza is a normal good. Identify what happens to the equilibrium price and quantity after the price of labor falls: The equilibrium price is expected to increase, the equilibrium quantity is expected to increase. The equilibrium price is expected to increase, and the equilibrium quantity is expected to decrease. The equilibrium price is expected to decrease, and the equilibrium quantity is expected to decrease. The equilibrium price is expected to decrease, the equilibrium quantity is expected to increase.
- Suppose the market for steel is expressed as follows: Domestic demand: p = 40 - 0.2q, or q = 200 - 5p Domestic supply: p = 0.2q, or q = 5p Domestic supply (foreign): p = 0.1q, or q = 10p a) What is the equilibrium price and quantity if there is free trade, with no restriction on imports? b) What is the equilibrium price and quantity if the government imposes a binding import quota of 20 units? Depict parts a and b on a single graph. c) How are US steel firms affected by the quota? US automakers? Explain briefly.Suppose demand decreases and supply decreases. Which of the following will happen? Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. The change in equilibrium price and quantity cannot be determined.if the price ceiling of a good is set AT the Equalibrium Price, is it non binding?
