HW5: Homework - Ch. 5: Price Controls and Quotas: Meddling with Markets

The table contains the supply and demand schedule for Bluefin tuna. Suppose all countries agree to limit tuna fishing to a total of 15,000 tons per year through a strictly enforced licensing program for fishermen. Price per Pound | Quantity demanded (tons) | Quantity supplied (tons) $$11.80 | 12,000 | 27,000 $11.35 | 15,000 | 24,000 $10.90 | 18,000 | 21,000 $10.45 | 21,000 | 18,000 $10.00 | 24,000 | 15,000 $9.55 | 27,000 | 12,000 At the new fishing quota, what is the quota rent per pound of Bluefin tuna? $ ___________ Suppose the average fisherman can catch 200,000 pounds of Bluefin tuna every year (100 tons). What is the value of a Bluefin tuna fishing license? $ ______________

1.35 270000

The graph of a labor market is shown. Place the endpoints of the minimum wage line to indicate a binding minimum wage in this market. Graph:

Graph: Minimum Wage: above E/intersection

For a number of reasons, governments set price floors for many agricultural products. Assume the government sets a price floor of $3.50 per bushel of corn. Assume a competitive market. Add and adjust the DWL triangle in the accompanying graph to show the deadweight loss due to the price floor. Graph: Without the price floor, what would the equilibrium price per bushel be? equilibrium price: $ _____________ With the price floor in place, what is the amount of the surplus? surplus: ______________ billion bushels

Graph: Deadweight Loss: Below Price Floor Left Triangle. 2.5 1

Alaskan king crab is one of the most prized shellfish. Suppose that, to protect their numbers, the Alaskan government allows only 15 million pounds of crab to be caught during the fishing season so that the Alaskan king crab population remains at an environmentally sustainable level. The graph includes the supply and demand curves for Alaskan king crab. Please label the graph appropriately. Not all terms will be used. Graph: Before the government imposes its regulations, what is the price of crab? $ ________ What is the demand price after the quota? $ ___________ What is the quota rent for Alaskan king crab? $ ___________

Graph: Left to Right to bottom: Quota Rent, Deadweight Loss, Quota. 3.5 4 1

Suppose the graph depicts a hypothetical market for concert tickets at a local college venue. Because students are paying such high prices, a price ceiling of $40 per concert is being considered. Move the price ceiling line to correctly depict the price ceiling of $40. Graph: By how much does consumer surplus (CS) increase if the price ceiling is imposed? $ ____________ By how much does producer surplus (PS) decrease if the price ceiling is imposed? $ ____________ What is the value of the deadweight loss (DWL) associated with this price ceiling? $ ____________

Graph: y-axis 40 (40*40)/2= 800 | (30*30)/2= 450 (20*30)= 600 -> (450+600)= 1050-800= 250 (40*40)/2= 800 | (30*30)/2= 450 -> 800-450= 350 (20*10)/2= 100

Suppose the city council in a large city decides to pass a law which forces landlords to charge a maximum rent of $750/month for a one-bedroom apartment. Prior to the rent control, the average rent for a one-bedroom apartment was $1,750/month. Which is likely to occur as a result of the price ceiling? The answer above is an example of

Landlords will begin decreasing the quality of one-bedroom apartments by not making repairs or paying for upkeep. inefficiently low quality.

Please identify the appropriate term for the following scenarios. Ivan, a Russian fishermen, needs a permit so that he can participate in commercial ice fishing for yellow perch and legally sell the perch he catches. Ivan's permit __________ Garet is an undergraduate student who has to work at McDonald's part-time to help pay his tuition loans. Always looking on the bright side of things, he is thankful that he cannot make less than what he is earning, $7.25/hour. Garet's wage _____________ D'Artagnan, a poor French noblemen, discovers a large cache of truffles in his backyard. However, the government caps the sale of truffles at $100/pound, which frustrates D'Artagnan because he knows they are worth more than that. The truffles price cap ______________ Athos is an avid collector of swords, but as they are illegal to purchase, he obtains them through illicit means. Buying swords illegally ____________ To help out farmers, the government sets the minimum price of potatoes at $26 per bushel. Minimum potato price ____________ In order to support domestic sales of textiles, the country of Germany puts a cap on the amount of foreign textiles it imports. Cap on imports ___________

License Price Floor Price Ceiling Black Market Price Floor Quota

The year is 1779 in Iceland. Light sources, such as oil lamps, are precious commodities (as harnessed electricity is not yet available). The government wants to intervene in the pricing of oil lamps so that its citizens do not pay outrageous amounts of money for lighting. The currency used in Iceland at the time is the rigsdaler. Consider the graph depicting Iceland's hypothetical supply and demand for oil lamps. If Iceland's governor chooses to set a price floor of 15 rigsdaler for an oil lamp, what will occur? If Iceland's governor chooses to set a price ceiling of 40 rigsdaler for an oil lamp, what will occur?

Nothing will change. Nothing will change.

The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month. Rent/month | Quantity demanded | Quantity supplied $1,750 | 300 | 4800 $1,500 | 600 | 2400 $1,250 | 1200 | 1200 $1,000 | 2400 | 600 $750 | 4800 | 300 The price ceiling results in a _______________ The city now has a shortage or surplus of how many apartments?

Shortage. 4500

Suppose a state passes a minimum wage law that increases the minimum wage from $5/hour to $20/hour. The equilibrium wage prior to the minimum wage hike was $10/hour. Which is likely to result from increasing the minimum wage? This result of increasing the minimum wage is an example of a

Some employers and workers will agree on a wage of less than $20/hour and not report the wages to the government. black market.

Suppose the table represents the labor market of Palau. Wage ($/hour) | Quantity of Labor Demanded (# of workers) | Quantity of Labor Supplied (# of workers) 7.00 | 38,000 | 34,000 7.50 | 36,000 | 36,000 8.00 | 34,000 | 38,000 8.50 | 32,000 | 39,000 9.00 | 30,000 | 40,000 If Palau enacts a minimum wage of $8.50$8.50 per hour, the labor market will experience

a surplus of 7,000 workers.

Rent controls are a typical example of a price ceiling. Please select all likely consequences of rent controls when the price ceiling is binding.

black markets more subletting of apartments reductions in apartment quality inefficient allocation of apartments

The graph shows the supply and demand curve for dry erase markers. Suppose the government decides to impose a binding price ceiling on the market. a. Place the price ceiling line segment to illustrate this new government policy. b. Shade the area representing the deadweight loss (DWL) that arises due to the price ceiling. Graph: c. After the price ceiling is implemented, there is

a. Bottom Option b. Price Ceiling, E, Vertical intersecting demand line c. a shortage.

Suppose that policy makers are concerned that the price of wheat may get too high. The market for wheat is depicted in the accompanying diagram. a. What type of price control would policy makers use to keep the price of wheat from getting too high? b. Suppose that the government implements the price control that you have selected. Which of these prices would be binding?

a. a price ceiling b. $5

Ivan, a Russian fisherman, needs a permit to fish and sell a certain type of fish, the yellow perch. Select the term that best fits the scenario.

license

Steve decides not to rent out his second home since he is not allowed to set the rate above $1000 per month even though he knows he could find renters willing to pay much more. Select the term that best fits the scenario.

price ceiling

Garret is an undergraduate looking for a job to pay for college. As Garret seeks employment, he is glad to know that he will be paid at least $7.25 per hour. Select the term that best fits the scenario.

price floor

The U.S. government limits the amount of sugar that can be purchased from foreign sugar producers. Select the term that best fits the scenario.

quota

Suppose the graph represents the labor market for low-wage workers. A minimum wage of $8 per hour is being considered. If imposed, the minimum wage will result in a ___________ of __________

surplus 200 workers.