This 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 market supply 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 decimal Substituting this solution back 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 the a) Set the P values equal using the above formulas, and solve for the equilibrium quantity in the market. This quantity is given by Q demands of 1000 identical consumers. Using the above Q solution, individual consumption at the market equilibrium is equal tounits (put one digit after the decimal 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 the supply 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's desired purchase is then equal to units. units, so that everyone's consumption desires cannot be satisfied. Suppose that consumers get in line to buy the c) Excess demand in the market is equal to good, with consumers buying their desired quantity until the good runs out. Using the answers from part (b), you can conclude that consumers get to purchase consumers get nothing (these are the people still in line when the supply runs out) their desired quantity, while
This 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 market supply 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 decimal Substituting this solution back 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 the a) Set the P values equal using the above formulas, and solve for the equilibrium quantity in the market. This quantity is given by Q demands of 1000 identical consumers. Using the above Q solution, individual consumption at the market equilibrium is equal tounits (put one digit after the decimal 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 the supply 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's desired purchase is then equal to units. units, so that everyone's consumption desires cannot be satisfied. Suppose that consumers get in line to buy the c) Excess demand in the market is equal to good, with consumers buying their desired quantity until the good runs out. Using the answers from part (b), you can conclude that consumers get to purchase consumers get nothing (these are the people still in line when the supply runs out) their desired quantity, while
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter4: Markets In Action
Section: Chapter Questions
Problem 14SQ
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Transcribed Image Text:This 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 market
supply 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 decimal
Substituting this solution
back 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 the
a) Set the P values equal using the above formulas, and solve for the equilibrium quantity in the market. This quantity is given by Q
demands of 1000 identical consumers. Using the above Q solution, individual consumption at the market equilibrium is equal tounits (put one digit after the
decimal 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 the
supply 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's
desired purchase is then equal to
units.
units, so that everyone's consumption desires cannot be satisfied. Suppose that consumers get in line to buy the
c) Excess demand in the market is equal to
good, with consumers buying their desired quantity until the good runs out. Using the answers from part (b), you can conclude that
consumers get to purchase
consumers get nothing (these are the people still in line when the supply runs out)
their desired quantity, while
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