Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 2, Problem 6MC
To determine
Example of
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A winery produce x thousand bottles of premium wine when the price for each bottle is S(x)=1.4x^2-50x+1480 The monthly demand for the bottles of wine is related to the price by D(x)=-x^2+34.8x+1928
A Find the consumer surplus and producer surplus when the market is at equilibrium.
B Find the change in consumer and producer surplus when the price increases by $20. Explain what happened. (Hint because it is a price increase and consumers will buy less use the demand equation to find the new quantity in the market.
Please answer all parts.
Market demand is P=125-(3/8)QMarket supply is P=5+(1/8)Q.
This time the government imposes a price ceiling of $20. That is, the price has to be at $20 or below it.a. Calculate the new equilibrium price and quantity.b. Calculate the new CS (Consumer Surplus) and PS (Producer Surplus). Who gains? Who loses?What is the deadweight?
If the government sets a price ceiling of $25, how much dead weight will be created?
(a) $500 (b) $250 (c) $350 (d) $700
If the government sets a price ceiling at $45, the market will experience:
(a) a shortage of 25 units. (b) a surplus of 25 units.
(c) a shortage of 60 units. (d) a surplus of 60 units.
(e) neither a shortage nor a surplus.
Chapter 2 Solutions
Managerial Economics: A Problem Solving Approach
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- Sofia pays Sam $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sam, he raises his price to $60. Sofia continues to hire him at the higher price. What is the change in producer surplus, change in consumer surplus, and deadweight loss?a. $0, $0, $10b. $0, −$10, $0c. +$10, −$10, $10d. +$10, −$10, $0arrow_forwardSuppose that the government has been supporting the price of corn. It's free market price is $2.50 per bushel, but the govt. has been setting a support price of $3.50 per bushel. Which of the following are ways that the government might try to reduce the size of the corn surplus? (One or more) A: Decrease the suppport price B: Institute an acreage allotment program C: Decrease demand by taxing corn purchases D: Raise the support price.arrow_forwardIndian government realized free market price of wheat is very low. To increase farmers’ welfare government took the following steps: a) Suppose the government imposes a binding price floor in the wheat market. How this policy will affect the price, quantity demanded and quantity supplied of wheat. b) Wheat farmers complained that this binding price floor reduced their revenue. Explain how it reduced their revenue. c) In response to wheat farmers’ complaints, government purchases all the surplus quantity at the minimum price decided by the government. Who are the beneficiaries and who loses due to this price floor?arrow_forward
- A $1 per unit tax levied on consumers of a good isequivalent toa. a $1 per unit tax levied on producers of the good.b. a $1 per unit subsidy paid to producers of the good.c. a price floor that raises the good’s price by $1 perunit.d. a price ceiling that raises the good’s price by $1per unit.arrow_forwardA government decides to reduce air pollution by reducing the use of petrol and imposes a specific tax of £0.50 on energy companies for each litre of petrol sold. Use a supply and demand diagram and show the effect of the tax on consumer and producer surplus and comment on the incidence of the tax on consumers of energy and producers of energy.arrow_forwardAs has happened in southern Chile with rains that generated heavy losses to agricultural sector, in case of potatoes, there has been a significant increase in their price. Government wants to establish a LEGAL MAXIMUM PRICE on potatoes. What are implications of this measure and how would it affect consumer and producer surplus? Justify and explain with graphs.arrow_forward
- 1. Give an example of a market (it can be of any good or service). 2. a) Determine a scenario where government imposes a binding quota. b) What are the consequences of this restriction on price of the good? (increase/decrease) Explain. c) What happens to economic surplus because of a)? Is there deadweight loss? d) Draw the graph. Highlight consumer surplus, producer surplus, and deadweight loss. 3. a) Determine a scenario where government imposes a binding restriction on price (ceiling or floor). b) What are the consequences of this restriction on quantity? (surplus/shortage) Explain. c) What happens to economic surplus because of a)? Is there deadweight loss? d) Draw the graph. Highlight consumer surplus, producer surplus, and deadweight loss.arrow_forward1. Give an example of a market (it can be of any good or service). 2. a) Determine a scenario where government imposes a binding quota. b) What are the consequences of this restriction on price of the good? (increase/decrease) Explain. c) What happens to economic surplus because of a)? Is there deadweight loss? d) Draw the graph. Highlight consumer surplus, producer surplus, and deadweight loss. 3. a) Determine a scenario where government imposes a binding restriction on price (ceiling or floor). b) What are the consequences of this restriction on quantity? (surplus/shortage) Explain. c) What happens to economic surplus because of a)? Is there deadweight loss? d) Draw the graph. Highlight consumer surplus, producer surplus, and deadweight loss. Please answer in fullarrow_forwardIn a market with a binding price ceiling, increasingthe ceiling price willa. increase the surplus.b. increase the shortage.c. decrease the surplus.d. decrease the shortagearrow_forward
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