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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Question
Chapter 11, Problem 2DQ
(a)
To determine
The nature of inefficiency in the given case of tea and coffee.
(b)
To determine
The nature of inefficiency in the given case of skilled machines and unskilled labors.
(c)
To determine
The nature of inefficiency in the given case of trucks and cars.
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Sven makes rocking chairs for a cost of $75 each, and he sells the rocking chairs for a market price of $130
each. Deidre is willing to pay $200 for a rocking chair. However, the government believes that rocking chair
manufacturers should receive more money, and set the lowest legal price rocking chairs can be sold for at $250.
At the market price, Sven is willing to sell a rocking chair to Deidre, and Deidre is willing to buy a rocking chair
from Sven. Unfortunately, with the new legal minimum, Sven and Deidre cannot trade with one another, and
miss out on additional gains from trade.
Which of the effects of a price control best fits the scenario above?
O Deadweight Loss
Reduction in Quality
O Misallocation of Resources
Wasteful Increase in Quality
Sven makes rocking chairs for a cost of $75 each, and he sells the rocking chairs for a market price of $130 each. Deidre is willing to pay $200 for a rocking chair. However, the government believes that rocking chair manufacturers should receive more money, and set the lowest legal price rocking chairs can be sold for at $250. At the market price, Sven is willing to sell a rocking chair to Deidre, and Deidre is willing to buy a rocking chair from Sven. Unfortunately, with the new legal minimum, Sven and Deidre cannot trade with one another, and miss out on additional gains from trade.
Which of the effects of a price control best fits the scenario above?
A)Deadweight Loss
B) Reduction in Quality
C) misallocation of resources
D)wasteful increase in Quanity
In a competitive market, what should consumer do if the marginal utilities/prices ratios are NOT same for all goods? Please explain by referring to MRS.
Chapter 11 Solutions
Economics: Principles & Policy
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