EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 8P
To determine
Reason for a large increase in prices under the strict zoning laws and a smaller increase in prices under the lax zoning
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
One of the members of the Senate Foreign Relations Committee has studied your analysis of Chinese privatization but is worried that the free-market price might be too low to enable producers to earn a fair rate of return on their investment. He asks you to explain what would happen if the Chinese government privatized the market but agreed to purchase (and discard) unsold units of the good at a floor price of $3.50. What do you tell the senator? Assume that the market demand and supply curves (in U.S. dollar equivalent prices) are still given by Qd = 10 − 2P and Qs = 2 + 2P
Please read the article attached below titled “Notable & Quotable: Gouging” (March 31, 2020) and answer the given question. Note: The phrase “price-gouging” refers to a situation where some sellers are charging prices (e.g., for health equipment and supplies) that are well above the market price charged by other sellers.
If firms are reluctant to raise prices and/or earn an economic profit in response to the coronavirus outbreak, explain why the usual mechanism for achieving “allocative” (or social) economic efficiency in a perfectly competitive industry breaks down. What does Professor Romer recommend to improve “allocative” efficiency during this extraordinary time of a pandemic? In your answer, be sure to explain what economists mean by “allocative” efficiency.
Pic 1 :
You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customers:
Price
Adults
Children
(Dollars)
(Tickets)
(Tickets)
10
0
0
9
100
0
8
200
0
7
300
0
6
300
0
5
300
100
4
300
200
3
300
200
2
300
200
1
300
200
0
300
200
To maximize profit, you would charge $ ?
for an adult's ticket and $ ?
for a child's ticket. Total profit in this case would be $ ?
The city council passes a law prohibiting you from charging different prices to different customers.
Now you set a price of $ ?
for all tickets, resulting in $ ?
in profit.
Pic 2 :
Indicate whether each of the following groups of people is better off, worse off, or the same because of the law prohibiting price discrimination.…
Knowledge Booster
Similar questions
- Situation 4-1 During the winter of 1973-74, a general system of wage and price controls (including a price ceiling on gasoline) was in force in the United States. At the beginning of 1974, some oil-producing countries imposed an oil embargo (a legal prohibition on commerce) on the West. In the spring of 1974, price controls were abolished. Because price controls were in effect at the time the embargo occurred, an economist would predict that the number of dollars one would need to pay at the pump for a full tank of gasoline would increase sharply. the number of dollars one would need to pay at the pump for a full tank of gasoline would decline sharply. O long waiting lines and black markets would appear. a surplus of gasoline would result.arrow_forwardIn his State of the Union address in 2003, President Bush supported the idea of changing from the use of internal combustion engines to fuel cells based on hydrogen as a way of reducing air pollution and the emission of greenhouse gases. Fuel cells are nonpolluting because they only emit water vapor. President Bush proposed having the government subsidize research and development of hydrogen fuel and fuel cell technology. The president did not propose raising taxes on gasoline as a way of encouraging the use of fuel cells and reducing greenhouse gases. Currently, hydrogen is more expensive than gasoline. Would an increase in the tax on gasoline encourage the development of hydrogen-based fuel cell technology for automobiles?arrow_forwardConsider the competitive market for production of a chemical as shown in the diagram below. This setup will apply to this question and the next two questions. P ($/gallon) Demand: P=220-Q/100 0 Supply: P = Q/400 Q (gallons) Production of this chemical produces noxious odors that impact the health of the communities surrounding the production facilities. It is well known that every gallon produced increases health costs in society, but there is a lot of argument over how much health costs increase. In reality the number is that health costs increase by $3 per gallon produced, but that it hard to discover. If the government does not intervene in this market, what will be the total surplus for society in this market (including the $3 per gallon health costs)? Please do not round at any step of any calculation. Do not round your final answer.arrow_forward
- The drug war There is a debate in the US and in Europe as to how to influence the market for drugs such as cocaine. Some argue that the answer is to reduce the supply of drugs from Colombia – which would otherwise eventually find their way onto the world markets – by giving aid to the Colombian government to fight the drug suppliers. If this is successful, it will drive up the price of cocaine on the streets. Higher prices mean that fewer people will be willing and able to buy drugs, resulting in a fall in demand. This scenario can be seen in Figure 1.13(a) where a successful anti-drug policy in Colombia would decrease supply, i.e. shift the supply curve for cocaine upwards and to the left so that there is an excess demand for cocaine at price P. This will result in a rise in the equilibrium price of cocaine from P to P1. The quantity demanded will contract along the demand curve D from Q to Q1 as price rises from P to P1. Critics of these ideas argue that programmes…arrow_forwardSince 1996, market prices for helium have seen consistent increases based on high demand in the technology sector. Many households have felt the impact directly when purchasing helium for birthday balloons. The U.S. government controls roughly 75% of the world’s helium supply, and in 1996, it set a price floor for the helium market, which outlaws the sale of helium below $64 for 1,000 cubic feet. Suppose that the graph below illustrates the market for helium after the price floor was implemented. (a) Because the price floor is set below the equilibrium price, the price control is ____ (b) In the current market, a price floor of $64 would ___ the quantity of helium gas bought and sold. (c) The quantity bought in the market is ___ cubic feet. (d) The quantity sold in the market is ____ cubic feet.arrow_forwardPart A: Several years ago, hurricane Gilbert destroyed thousands of acres of banana in Jamaica. Farmers whose crops were destroyed by the hurricane were much worse off, but farmers whose crops were not destroyed benefitted from the hurricane. Why did this occur? what information would you need about the market for bananas in order to assess whether farmers as a group were hurt or helped by the floods? Part B: Explain why the following might be true: A drought in the Caribbean raises the total revenue that producers receive from the sale of coffee, but a drought only in Grenada reduces the total revenue that Grenadian producers receive.arrow_forward
- More than 20 states have laws outlawing price gouging during a state of emergency, which might be declared after a hurricane or an earthquake. These laws prohibit price increases on basic necessities, such as gasoline. Which of the arguments against price ceilings might not be significant during a state of emergency? It might be the case that during an emergency, consumers have little concern over the quality of a good that is available. It might be the case that during an emergency, consumers have little concern over the quantity of a good that is available. It might be the case that during an emergency, consumers have lttle concern over the price of a good that is available It might be the case that during an emergency, consumers have little concern over the location of a good that is available.arrow_forwardSupply and Demand The law of demand and supply are important in business. The law of demand states that as price of a good or service increases, the quantity demand decreases and vice versa. While the law of supply states that as prices of goods and services increase, the quantity supplied increases. The law of demand is a good concept for businesses when setting prices. As businesses raise prices, consumers may buy less of the product because their incomes are mostly stagnant. For example, a parent may buy 4 loaves of bread at $2 each which is $8, but may decide to only buy 2 loaves of bread when the price of a loaf of bread increases to $4. This is because the parent’s income is stagnant and he or she has allocated only $8 for bread. Discussion question The law of demand states that as the price of a good or service increases, the quantity demanded goes down and vice-versa. Share an example of a good or service that follows the law of demand. Give an example of goods or services…arrow_forwardQuestion 8 You are the manager of medium-sized company that deals in production of make-ups in Ghana. Suppose one morning you heard on the news that the government has imposed a lump sum tax on every unit of make-up sold in the market. a) Using demand and supply analysis, illustrate the effect of the lump sum tax imposed on the make-up market by showing whether there will be a shortage or surplus of make-ups in the market. b) How would you expect the equilibrium price and quantity of make-up to change in the market? c) Suppose during the same period the price of a leading substitute product decreases along with the change the effect of the tax mentioned above, how would you expect the equilibrium price and quantity of make-up to change? Note: Draw a graph to explain your answers.arrow_forward
- Companies in the steel and alumina industry may react to an increase in the price of crude oil by increasing their prices to reflect the increased cost of production. This, in turn, may lead to higher prices for consumers. Alternatively, companies may seek to reduce their production costs by implementing cost-saving measures, such as switching to alternative sources of energy or reducing their energy consumption. In some cases, companies may seek government intervention, such as relaxing import controls or offering subsidies, to help them cope with the increased cost of production. Ultimately, the reaction of companies in the steel and alumina industry will depend on a range of factors, including the specific circumstances of each company, the availability of alternative sources of energy, and the actions of their competitors. An increase in the price of crude oil will increase the cost of production for the steel and alumina industry, which will increase the price of their products…arrow_forwardStarcrossed City contains two types of businesses— Software design and film production. Assume the software companies have the highest transportation costs and residential has the lowest transportation costs of the three sectors. In a graph, draw the software design, film production, and residential bid rent curves for Starcrossed City. Label your graph clearly and explain where each would locate relative to the city center. After the pandemic hit there were several big changes. First, there was a big demand for film content, so the profitability of these firms increased and making it even more important for this industry to get to work. What would this do to the film production bid rent curve? Second, the software businesses realized they could be just as productive from home, so they allowed for remote work for many of their employees. What would this change do to the software design bid rent curve? Lastly, the software designers have decided they can reduce their…arrow_forwardThe blue curve on the following graph represents the demand curve facing a firm that can set its own prices. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. # 345470 10 QUANTITY (Unita) *** TO QUANTITY (Number of units) Graph Input Tool Market for Goods Quantity Demanded (Lv) Demand Price (Dollars per unit) On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 2, 4, 5, 6, 8, and 10 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbo) to plot the results. Total Revenue QUANTITY() Ⓒ 50.00 Calculate the total revenue if the firm produces 2 versus 1 units. Then, calculate the marginal revenue of…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education