Study Guide for Microeconomics
9th Edition
ISBN: 9780134741123
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 9, Problem 10E
(a)
To determine
Identify the free
(b)
To determine
Identify the price of oil.
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Students have asked these similar questions
The figure below illustrates the market for Washington apples after the government imposes a price floor of $20 per crate of apples
How many crates of apples were sold before the price floor? million crates
How many crates of apples will be demanded after a binding price floor is set? million crates
How many crates of apples will be supplied after a binding price floor is set? million crates
How many crates of apples will be sold after the price floor? million crates
What is the size of the shortage or surplus? million crates
Explain why the imposition of the price ceiling does not result in a deadweight loss.
Price ($/lb)
Quantity Supplied (thousands of lbs per day)
Quantity Demanded (thousands of lbs per day)
1.5
8
14
2
9
13
2.5
10
12
3
11
11
3.5
12
10
4
13
9
Now, suppose that instead of a price ceiling, the government simply pays flour sellers a subsidy of $1/lb on flour sales. How much flour would be sold? How much would consumers now pay for flour? How much would producers be paid in total for each pound of flour sold? On a separate graph, depict the equilibrium from question 1, alongside the equilibrium with the subsidy. XXXX
Chapter 9 Solutions
Study Guide for Microeconomics
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- Discuss how the equilibrium price and quantity change when a change in demand occurs and the supply stays constant, and when a change in supply occurs and the demand stays constant. How do price controls affect the market? Provide a real-world example that takes consumer surplus and producer surplus into consideration.arrow_forwardThe following graph shows a demand curve (in blue) and a supply curve (in orange). Suppose a price ceiling of $3 per unit is imposed. Use the grey points (star symbols) to shade the area representing the deadweight loss resulting from the price ceiling. The following graph shows a demand curve (in blue) and a supply curve (in orange). Suppose a price ceiling of $12 per unit is imposed. Use the green points (triangle symbols) to shade the area representing producers’ surplus after the price ceiling. Then use the purple points (diamond symbols) to shade the area representing consumers’ surplus after the price ceiling. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardThe following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes. (a). True or False: A price ceiling above $25 per box is a binding price ceiling in this market. (Hint: Economists call a price ceiling that prevents the market from reaching equilibrium a binding price ceiling.) (b). Because it takes many years before newly planted orange trees bear fruit, the supply curve in the short run is almost vertical. In the long run, farmers can decide whether to plant oranges on their land, to plant something else, or to sell their land altogether. Therefore, the long-run supply of oranges is much more price sensitive than the short-run supply of oranges. Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a _____ (options: shortage, surplus) that is _____ (options: smaller, larger) in the long run than in the short run.arrow_forward
- Consider the market for ice cream cones. Suppose that supply in this market is given by P^S = Q^S and demand is given by P^D = 30 - 4Q^D. Answer the following question. Suppose that the government is considering imposing a $4.00 price control as either a price ceiling or a price floor. Would this be a binding price control as a price floor or as a price ceiling? Will this cause a shortage or a surplus? Compute the size of the shortage or surplus that would result.arrow_forward39) A student wrote: "A production quota is inefficient because it results in overproduction. At the quota quantity, marginal social cost is equal to the market price and marginal social benefit is less than the market price, so marginal social cost exceeds marginal social benefit." If you were the instructor, how would you correct this statement? 40) When the government passes a law making a particular good illegal, does it matter for the black market price and quantity if the penalties for breaking the law are imposed on the buyers or on the sellers? 41) In 1920 a constitutional amendment was passed that outlawed the production, sale, purchase, and consumption of alcoholic beverages. "Prohibition" encouraged bootlegging and black markets for whiskey, wine, and beer. The amendment was eventually repealed in 1933. In 1920, what alternative economic policy was available to the government as a means of reducing alcohol consumption nationwide?arrow_forwardSuppose the demand for live comedy performance tickets is downward sloping and the supply of live comedy performance tickets is upward sloping. Lovers of comedy persuade Congress to impose a price ceiling of $40 per ticket for live comedy performances. True or False: If the equilibrium price of live comedy performance tickets were $40, a price ceiling of $40 will cause more people to attend comedy performances than if there is no price control.arrow_forward
- Some government agricultural policies involve price controls. Other agriculturalpolicies, however, involve quantity controls. The equilibrium price of wheat is $5 and the equilibrium quantity is 100 bushels, as shown in the diagram on the right. Suppose the government institutes a policy that prohibits wheat farmers from growing more than 60 bushels of wheat in total. How would this policy change the supply curve for wheat? Use your supply and demand diagram to show that the government policy would raise the equilibrium price and lower the equilibrium quantity of wheat. Show that the policy will lead to a deadweight loss in the wheat market. 1.) Using the multipoint curve drawing tool, graph the supply curve for wheat with the quota. Label your curve 'Upper S2.' (Note: draw the entire supply curve) 2.) Using the point drawing tool, indicate the market price and quantity with the quota. Label your point 'e 2. 3.) Using the triangle drawing tool, shade in the…arrow_forwardIn 1994, 565 economists sent President Bill Clinton a letter warning against the economic consequences of price controls that played such a prominent role in his healthcare reform plan. The price controls included mandated fee schedules for a fee for service medical plans, perspective budgets for regional health alliances, increases in health insurance premiums tied to the cost of living, and price ceilings on prescription drugs. Discuss the economics of price controls. Under what circumstances do they accomplish their intended purpose? When do they fail?arrow_forwardA “black market” is a place where people make illegal trades in goods and services. For instance, during the Soviet era, it was common for American tourists to take a few extra pairs of Levi’s jeans when visiting the Soviet Union: They would sell the extra pairs at high prices on the illegal black market. Consider the following claim: “Price-controlled markets tend to create black markets.” Let’s illustrate with the following figure. If there is a price ceiling in the market for cancer medication of $50 per pill, what is the widest price range within which you can definitely find both a buyer and a seller who would be willing to illegally exchange a pill for money? (There is only one correct answer.)arrow_forward
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