Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 4, Problem 3WNG
To determine
The
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Complete the following table by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it results in a shortage or a surplus or has no effect on the price and quantity that prevail in the market.
The government has instituted a legal minimum price of $2.30 per gallon for milk.
The government prohibits grocery stores from selling milk for more than $2.30 per gallon.
Due to new regulations, grocery stores that would like to pay better wages in order to hire more workers are prohibited from paying more than $16.50 per hour.
Illustrate on a supply and demand diagram how price ceilings may distort the market outcome, and specify what secondary effects price ceilings can create.
What are the side effects of price ceilings? How might price ceilings affect the supply of goods and services that are subject to the price ceilings? Do you agree or disagree with price ceilings? Why or why not? Do you agree or disagree with laws against price gouging? Why or why not?
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- Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch. Using the demand and supply framework, predict the effects on the price, quantity demanded, and quantity supplied. With the enactment of this price floor for fish, what are some of the likely unintended consequences in the market? Suggest some policies other than the price floor to make it possible for small fishing villages to continue.arrow_forwardA surge in bread prices causes the government to worry that many poor individuals will no longer be able to afford a basic meal. To combat the surge, the government decides to set an effective (or binding) price ceiling. Draw the market for bread below with the equilibrium price, price ceiling, and label the surplus or shortage. (Make sure to label each axis on the graph!) List three possible unintended side effects of this policy. Be specific.arrow_forwardDoes a price ceiling attempt to make a price higher or lower?arrow_forward
- A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. The conditions of demand and supply are given in Exhibit 10. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage if the price ceiling is set at $2.40? At $2.00? At $3.60? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 Exhibit 10. Demand and Supply of Bread in Low-Income Countryarrow_forwardHow can a price ceiling make consumers better off? Under what conditions might it make them worse off?arrow_forwardThere has been a great deal of movement of physicians across borders within the European Union, and this migration has raised concerns about patient safety and quality of care. Some member states havegoods and services and in sharp spikes in product prices. Governments may respond to public outcries against dramatically higher prices by imposing price ceilings to lower product prices or to keep them from rising too high. What effect would such a binding price ceiling have? Who would benefit from this policy, and who would be harmed?arrow_forward
- Examine the imposition of a price floor on the market. What happens to the following? • Price paid by the buyer• Quantity demanded• Quantity supplied• quantity of the good sold• Consumer surplus• Producer surplus• Total surplus b) Examine the imposition of a price ceiling on the market. What happens to the following? • Price paid by the buyer• Quantity demanded• Quantity supplied• Quantity of the good sold• Consumer surplus• Producer surplus• Total surplus c) Discuss two unintended effects of a price ceilingarrow_forwardif the price ceiling of a good is set AT the Equalibrium Price, is it non binding?arrow_forwardRent Ceilings in New York City New York City rent controls began after World War II, when greater demand for rental housing threatened to push rents higher. To keep prices from rising to their equilibrium level, city officials imposed rent ceilings. Since the quantity demanded at the ceiling price exceeded the quantity supplied, a housing shortage resulted, as was sketched out in panel (b) of Exhibit 11. Thus, the perverse response to a tight housing market was a policy that reduced the supply of housing over time. Prior to rent controls, builders in New York City completed about 30,000 housing units a year and 90,000 units in the peak year. After rent controls, new construction dropped sharply. To stimulate supply, the city periodically promised rent-ceiling exemptions for new construction. But three times the city broke that promise after the housing was built. So builders remain understandably wary. During the peak year of the last decade only about 10,000 new housing units were…arrow_forward
- How does a price ceiling below equilibrium affect the market? How does a price ceiling above equilibrium affect the market? Discuss how rent control, one of the most popular price ceilings, specifically affects the market for housing.arrow_forwardWhat is the definition of a price ceiling? How can a free-market eliminate shortages?arrow_forwardExplain why a shortage occurs in a market where binding price ceiling exist. Does a price ceiling improve the operation of the market?arrow_forward
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