Business

EconomicsQ&A LibraryThis problem deals with the effects of a price control (or a price ceiling). Suppose that the market demand curve is given by P = 6- (1/1000)Q and that the marketsupply curve is given by P 1(1/1000)Q. Note that, in doing the calculations below, it's easier to leave the (1/1000) factors as is without converting to a decimalSubstituting this solutionback into the demand function, the equilibrium price is P (put two digits after the decimal point). Suppose that the market demand comes from adding up thea) Set the P values equal using the above formulas, and solve for the equilibrium quantity in the market. This quantity is given by Qdemands of 1000 identical consumers. Using the above Q solution, individual consumption at the market equilibrium is equal tounits (put one digit after thedecimal point)b) Now suppose the government institutes a price control, setting the price of the good at P 2. At this price, the quantity supplied equalsunits (set P 2 in thesupply formula and solve for Q). The quantity demanded equals units (set P 2 in the demand formula and solve for Q). With 1000 consumers, each individual'sdesired purchase is then equal tounits.units, so that everyone's consumption desires cannot be satisfied. Suppose that consumers get in line to buy thec) Excess demand in the market is equal togood, with consumers buying their desired quantity until the good runs out. Using the answers from part (b), you can conclude thatconsumers get to purchaseconsumers get nothing (these are the people still in line when the supply runs out)their desired quantity, whileQuestion

Asked Nov 27, 2019

23 views

Step 1

Demand function is given:

Step 2

**a)** The equilibrium quantity can be calculated by equating the above functions.

Step 3

Hence, **the equilibrium quantity is 2500 units.**

** **

Substituting the q...

Find answers to questions asked by student like you

Show more Q&A

Q: In doing this problem, it helps to remember a few rule about exponents. The first rule is that, for ...

A: (a) If the capital and the labor increased by k times. The production function can be derived as fol...

Q: Hello, I would like help on those assignments. Thank you

A: As per our Honor code, we can solve only 1st question. If you want the answer for rest of the questi...

Q: Suppose the economy is in a long-run equilibrium a)Draw a diagram to illustrate the state of the eco...

A: a) In the present state the equilibrium in the economy is given by point E where all the long run su...

Q: Government survey takers determine that typical family expenditures each month in the year designate...

A: The Consumer Price Index (CPI) refers to a statistical estimate which is calculated using the prices...

Q: 1. Which of the following is a major area of disagreement between activists and nonactivists? Gro...

A: The major area of disagreement between activists and nonactivists is:Option A is correct - Activists...

Q: Most economists argue that we should not strive to balance the budget on an annual basis and prefer ...

A: Balanced Budget - A balanced budget is a situation in financial planning or the budgeting process wh...

Q: Economists use labor-market data to evaluate how well an economy is using its most valuable resource...

A: The unemployment rate is the percentage of unemployed people among the total labor force.

Q: Suppose an initial investment of $100 will return $50/year for three years (assume the $50 is receiv...

A: An investment is profitable if the IRR is greater than the discount rate used to discount the cashfl...

Q: b) Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram to show ...

A: b.The aggregate demand is the summation of all the individual demands in the economy. There will be ...