econ2 Chapter 3

Assuming a market is currently at the equilibrium price and quantity, when a price ceiling is set below the equilibrium price, ______________.

the quantity demanded will rise and the quantity supplied will fall, causing a shortage; When a price ceiling is set below the equilibrium price, the quantity demanded will rise and the quantity supplied will fall, causing a shortage.

Which of the following would be consequences of more rental properties in the United States being subject to binding price ceilings?

a shortage of apartments, the quantity demanded of apartments will exceed the quantity supplied; When a binding rent ceiling is instituted, this causes the price in the market for apartments to be below equilibrium. As a result, there will be more people looking for apartments than there will be landlords looking to rent out apartments. A shortage of apartments will result.

Price ceilings are typically enacted in an attempt to keep prices high for those who produce the product.

False; Price ceilings are typically enacted in an attempt to keep prices low for those who demand the product. A price floor is enacted to keep prices high for producers.

If the price of a good were to change will it shift demand or change quantity demanded?

It will change quantity demanded; When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. A shift in demand means that at any price (and at every price), the quantity demanded will be different than it was before. A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.

Assuming a market is currently at the equilibrium price and quantity, what happens when a price ceiling is set above the equilibrium price?

There is nothing preventing the price from reaching its equilibrium level; When a price ceiling is set above the equilibrium price, there is nothing preventing the price from reaching equilibrium and staying there. Since a price ceiling is a level above which price cannot rise and the equilibrium price is below that level, the price ceiling will not have any real effect on the market.

Price ceilings typically affect which of the following?

rent; A price ceiling is a legal maximum price that one pays for some good or service. A government imposes price ceilings in order to keep the price of some necessary good or service affordable. Rent is likely to have a price ceiling in an effort to keep prices low for those needing them. This is a necessity that could disproportionately affect the poor. An unintended consequence is that shortage occurs and some people are unable to get the goods. Additionally, product quality may suffer. Milk, cars and CEO salaries are not generally affected by price ceilings.

Farmers are given a subsidy to encourage the production of more corn. At the same time, trendy diets have discouraged the use of corn syrup in products. Demonstrate the effect of these events on the equilibrium price and quantity of corn.

First we'll analyze the shift in supply of corn. Step 1: Begin with the initial supply and demand curves with the initial equilibrium price and quantity to illustrate the the market for corn looked like before this scenario starts. Step 2: Did the described change affect supply or demand? A subsidy decreases the production cost of corn, impacting supply. Step 3: Was the effect on supply positive or negative? The supply of corn will increase, shifting the supply curve to the right. Step 4: Compare the new equilibrium price and quantity to the original equilibrium price. A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity. Second, we'll analyze the shift in demand for corn. Step 1: Begin with the initial supply and demand curves with the initial equilibrium price and quantity to illustrate the the market for corn looked like before this scenario starts. Step 2: Did the described change affect supply or demand? A change in tastes toward corn syrup will cause a change in demand for corn. Step 3: Was the effect on demand positive or negative? A change in tastes away from corn syrup causes decreased quantity demanded at every given price, causing the demand curve for corn to shift to the left. Step 4: Compare the new equilibrium price and quantity to the original equilibrium price. The new equilibrium occurs at a lower quantity and a lower price than the original equilibrium. The final step in a scenario where both supply and demand shift is to combine the two individual analyses to determine what happens to the equilibrium quantity and price. These are superimposed on the provided graph. Following are the results: Effect on Quantity: The effect of the subsidy on corn is that it increases the supply of corn and thus increases the equilibrium quantity. The effect of a change in tastes away from corn syrup is that it decreases the equilibrium quantity. Since the two effect are in opposite directions, unless we know the magnitudes of the two effects, the overall effect is unclear. Effect on Price: The effect of the subsidy on corn increases supply and thus decreases the equilibrium price. The effect of a change in tastes away from corn syrup also decreases the equilibrium price. Since both shifts are to the left, the overall impact is an decrease in the equilibrium price of corn.

If the equilibrium price of yellowfin tuna is $30.00 per pound, and a price floor for yellowfin tuna is set at $35.00 per pound, what will happen?

There will be a surplus of yellowfin tuna; A price floor is defined as the minimum amount that can legally be charged for a good or service. An effective price floor is set above equilibrium and is meant to help the producer. A price floor set above equilibrium results in the quantity supplied being greater than quantity demanded which results in a surplus. Because the legal price of tuna is greater than the equilibrium of yellowfin tuna, the quantity supplied will be greater than the quantity demanded.

Which of the following would be consequences of more rental properties in the United States being subject to binding price ceilings?

excess supply; A price floor will tend to create conditions of excess supply as a result of the misalignment in the market forces of more supply produced than demanded at this higher price. If price is set above equilibrium, quantity demand decreases while quantity supplied increases, causing a shortage to exist in the market.

A price floor will affect both the price charged for a good and the quantity supplied if ________________.

it is set above the equilibrium price; When a price floor is set above the equilibrium price, the quantity supplied will rise and the quantity demanded will fall, causing a surplus. When a price floor is set below the equilibrium price, there is nothing preventing the price from rising to its equilibrium level. Only when the price floor is above the market equilibrium will in influence the market quantity and price.