Chapter 10: Policy Analysis RS) The U.S. demand and supply of gasoline in 2011 were given respectively by Qº=202-19P and Q³ =73 +17P billions of gallons. The equilibrium price was $3.58. A) How large would be the market distortion (shortage or surplus) caused by a price ceiling at $3.30? B) Instead of a price ceiling, if the government imposed an additional $0.40 tax per gallon (to be paid by the sellers), what would be the new equilibrium price of gasoline? And what would have been the additional tax burden on the buyers?

Chapter 10: Policy Analysis RS) The U.S. demand and supply of gasoline in 2011 were given respectively by Qº=202-19P and Q³ =73 +17P billions of gallons. The equilibrium price was $3.58. A) How large would be the market distortion (shortage or surplus) caused by a price ceiling at $3.30? B) Instead of a price ceiling, if the government imposed an additional $0.40 tax per gallon (to be paid by the sellers), what would be the new equilibrium price of gasoline? And what would have been the additional tax burden on the buyers?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 3PA

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Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans. a. People decide to have more children. b. A strike by steelworkers raises steel prices. c. Engineers develop new automated machinery for the production of minivans. d. The price of sports utility vehicles rises. e. A stock market crash lowers peoples wealth.
How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied?
1. At a price of $4.61 per pound, the supply for cherries is 16,107 pounds, and the demand is 10,362 pounds. When the price drops to $4.18 per pound, the supply decreases to 10,789 pounds and the demand increases to 12,724 pounds. Assume that the price-supply and price-demand equations are linear. What is the equilibrium price? 2. At a price of $4.97 per pound, the supply for cherries is 16,172 pounds, and the demand is 10,336 pounds. When the price drops to $4.24 per pound, the supply decreases to 10,790 pounds and the demand increases to 12,668 pounds. Assume that the price-supply and price-demand equations are linear. What is the equilibrium quantity? Round to the nearest pound.
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Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown below: Suppose government establishes a price ceiling of $3.70 for wheat. What might prompt it to establish this price ceiling? Explain carefully the main effects. Demonstrate your answer graphically.
1. Much of the demand for U.S. agricultural output comes from other countries. Suppose that the total demand for wheat in the U.S. wheat market is QDT = 3,244 – 283P, where P is the price measured in dollars per bushel and Q is the quantity of wheat expressed in millions of bushels per year. Of the total demand, total domestic demand was QD,US = 1,700 – 107P. Total supply of wheat in the U.S. market is QST = 1,944 + 207P. As a result of the ongoing trade war with China, suppose the export demand for wheat falls by 40 percent. a. U.S. farmers are concerned about this drop in export demand. How does this drop in export demand impact the market price of wheat in the U.S.? Do farmers have much reason to worry? Explain/support your answer. b. How does the reduction in export demand affect U.S. consumer surplus in the wheat market? Illustrate and explain. c. Now, suppose the U.S. government wants to buy enough wheat to raise the price to $3.50 per bushel. With the drop in export…
Question 1. The price ceilings that state and local government place on apartments will cause: A. Increases in demand. B.Increases in supply. C. Shortages. D. Surpluses. QUESTION 2. Suppose there are a series of forest fires which affect the lumber industry while, at the same time, consumers demand more wooden furniture. The wooden furniture market would experience: A. An increase in price and an indeterminate change in quantity. B. An increase in price and an increase in quantity. C. An increase in quantity and an indeterminate change in price. D. A decrease in price and an indeterminate change in quantity.
QUESTIONS: Scenario 1: As part of an international trade agreement, the Oman government reduces the tax on imported coffee. a. Will this affect the supply or the demand for coffee? Why? b. Which determinant of demand or supply is being affected? Explain. c. Show graphically the effect of changes in demand or supply. d. How will this change the equilibrium price and quantity of coffee? Explain your reasoning. Scenario 2: The Ministry of health publishes a study finding that coffee drinking reduces the probability of getting cancer. a. How do you imagine this will affect the market for coffee? Why? b. Which determinant of demand or supply is being affected? Explain. c. Show graphically the changes in demand or supply. d. Will this change the equilibrium price and quantity of coffee? Explain your reasoning.