Question 5 Refer to the information provided in Figure 4.3 below to answer the question(s) that follow. Price ($) 0.55 0.50 0.45 0.40 25 Numb 1 75 Number of pencils Figure 4.3 D a) Refer to Figure 4.3. Which price labeled in the graph would be an example of an effective price ceiling? What happens to the quantity demanded and quantity supplied at this price level? Is there a shortage or a surplus? b) Refer to Figure 4.3. Which price labeled in the graph would be an example of an effective price floor? What happens to the quantity demanded and the quantity supplied at this price level? Is there a shortage or a surplus? c) Refer to Figure 4.3. If the government will not allow retailers to charge more than $0.40 for a pencil, how will pencils be rationed? How does this compare to how pencils are rationed if the price is $0.45? d) Using the effective price ceiling from a), measure the inefficiency in the market for pencils. Show your calculation. e) Using the effective price floor from b), measure the inefficiency in the market for pencils. Show your calculation. f)Milton Friedman's "Lesson of a Pencil" lecture, explains why the equilibrium in the graph above generates the largest "economic pie." Using the graph above, calculate the level of total surplus when the market is in equilibrium.
Question 5 Refer to the information provided in Figure 4.3 below to answer the question(s) that follow. Price ($) 0.55 0.50 0.45 0.40 25 Numb 1 75 Number of pencils Figure 4.3 D a) Refer to Figure 4.3. Which price labeled in the graph would be an example of an effective price ceiling? What happens to the quantity demanded and quantity supplied at this price level? Is there a shortage or a surplus? b) Refer to Figure 4.3. Which price labeled in the graph would be an example of an effective price floor? What happens to the quantity demanded and the quantity supplied at this price level? Is there a shortage or a surplus? c) Refer to Figure 4.3. If the government will not allow retailers to charge more than $0.40 for a pencil, how will pencils be rationed? How does this compare to how pencils are rationed if the price is $0.45? d) Using the effective price ceiling from a), measure the inefficiency in the market for pencils. Show your calculation. e) Using the effective price floor from b), measure the inefficiency in the market for pencils. Show your calculation. f)Milton Friedman's "Lesson of a Pencil" lecture, explains why the equilibrium in the graph above generates the largest "economic pie." Using the graph above, calculate the level of total surplus when the market is in equilibrium.
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter4: Supply And Demand: An Initial Look
Section: Chapter Questions
Problem 4TY: The following table summarizes information about the market for principles of economics textbooks:...
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Transcribed Image Text:Question 5
Refer to the information provided in Figure 4.3 below to answer the question(s) that follow.
Price ($)
0.55
0.50
0.45
0.40
0
75
50
25 Number of pencils
Figure 4.3
S₁
D
Q
a) Refer to Figure 4.3. Which price labeled in the graph would be an example of an effective
price ceiling? What happens to the quantity demanded and quantity supplied at this price level?
Is there a shortage or a surplus?
b) Refer to Figure 4.3. Which price labeled in the graph would be an example of an effective
price floor? What happens to the quantity demanded and the quantity supplied at this price
level? Is there a shortage or a surplus?
c) Refer to Figure 4.3. If the government will not allow retailers to charge more than $0.40 for a
pencil, how will pencils be rationed? How does this compare to how pencils are rationed if the
price is $0.45?
d) Using the effective price ceiling from a), measure the inefficiency in the market for pencils.
Show your calculation.
e) Using the effective price floor from b), measure the inefficiency in the market for pencils.
Show your calculation.
f)Milton Friedman's "Lesson of a Pencil" lecture, explains why the equilibrium in the graph
above generates the largest "economic pie." Using the graph above, calculate the level of total
surplus when the market is in equilibrium.
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