ECON 1000 Lecture Notes - Lecture 4: Price Ceiling, Economic Equilibrium, Price Floor

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greyplatypus391

15 Mar 2016

School

Northeastern University

Department

Economics

Course

ECON 1000

Professor

carolinavaliente

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Document Summary

Price ceiling: a legal maximum on the price at which a good can be sold. Price floor: a legal minimum on the price at which a good can be sold. When equilibrium price is below price ceiling, the price ceiling is not binding: market forces naturally move the economy to the equlibirum, and the price ceiling has no effect on the price or the quantity sold. When the govermnet imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration the scarce goods amoung the large number of potential buyers. Supply and demand are inelastic in short run. Policymakers often react to the effects of rent control by imposing additional regulations. A binding price floor causes a surplus. The minimum wage has its greatest impact on the market for teenage labor. Earned income tax credit: government program that supplements the incomes of low-wage workers.

Related Questions

A recent study found that the demand and supply schedules for flying disks are as follows:

Price	Quantity Demanded	Quantity Supplied
(Dollars per disk)	(Millions of disks)	(Millions of disks)
11	1	15
10	2	12
9	4	9
8	6	6
7	8	3
6	10	1

Complete the first row of the following table by indicating the equilibrium price and the equilibrium quantity of flying disks in the absence of any price controls.

Scenario	Market Price	Market Quantity	Binding or Not Binding
Scenario	(Dollars per disk)	(Millions of disks)	Binding or Not Binding
No Price Control			N/A
Price Floor
Price Ceiling

Flying disk manufacturers persuade the government that flying disk production improves scientists' understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a price floor $2 above the equilibrium price.

Complete the second row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price floor $2 above the equilibrium price. Then indicate whether the price floor is binding or not binding.

Irate college students march on Washington and demand a reduction in the price of flying disks. An even more concerned Congress votes to repeal the price floor and impose a price ceiling $3 below the former price floor.

Complete the final row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price ceiling $3 below the former price floor. Then indicate whether the price ceiling is binding or not binding.

ochrejackal539

QUESTION 38

You are the president of the United States. In an attempt to make gasoline prices cheaper, you have imposed a binding price ceiling on gas. What would you expect your critics to say?

	a.	The binding price ceiling will cause firms to minimize their spending on the research and development of alternatives to gasoline.
	b.	The binding price ceiling will discourage individuals from using their personal automobile to commute to work or school.
	c.	The binding price ceiling will increase the likelihood that customers obtain needed gasoline on the black market.
	d.	The binding price ceiling will encourage oil companies to deplete the resource too quickly.
	e.	The binding price ceiling will cause firms to produce only gasoline of the highest quality.

1.05000 points

QUESTION 39

If a firm's long-run average total costs increase as it increases its scale of production, the firm is experiencing:

	a.	increasing returns from specialization.
	b.	diseconomies of scale.
	c.	economies of scale.
	d.	constant returns to scale.
	e.	diminishing marginal product.

1.05000 points

QUESTION 40

A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ tax revenue from that tax.

	a.	increase; increase
	b.	increase; have no effect on
	c.	decrease; have no effect on
	d.	decrease; decrease
	e.	increase; decrease

1.05000 points

QUESTION 41

The costs of a market activity paid for by an individual engaged in the market activity are:

	a.	external costs.
	b.	social costs.
	c.	common costs.
	d.	free-rider costs.
	e.	internal costs.

1.05000 points

QUESTION 42

Assume that the price of rubber increased at the same time that Michael Jordan, arguably the best NBA basketball player of all time, became famous. What do you expect to happen to the equilibrium price and equilibrium quantity of the basketball shoes that are promoted by Michael Jordan?

	a.	Equilibrium price will go down and equilibrium quantity will be indeterminate.
	b.	Equilibrium price will go up and equilibrium quantity will go down.
	c.	Equilibrium price will go up and equilibrium quantity will be indeterminate.
	d.	Equilibrium price will go down and equilibrium quantity will go up.
	e.	Equilibrium price will go up and equilibrium quantity will go up.

1.05000 points

QUESTION 43

The minimum wage law is an example of a:

	a.	price floor.
	b.	law that sets the minimum number of hours that an employee must work for wages during the week.
	c.	law that allows individual employers and employees to make free decisions.
	d.	law that requires quantity demanded to equal quantity supplied.
	e.	price ceiling.

taupezebra466

A ban was imposed on the export of oranges to EconoLand. As the Minister of Agriculture you are concerned that this ban could result in a shortage of oranges. Your advisors provide the following recommendations: Â· Advisor 1: impose a binding price ceiling. Â· Advisor 2: impose a binding price floor. Â· Advisor 3: take no action at all.

Determine with regard to demand, supply, price and quantity:

(i) The impact of the ban on the market for oranges in EconoLand.

(ii) The impact on the market for oranges in EconoLand if each recommendation is implemented.

Your answer options for each one of demand, supply, price and quantity are:

Decrease toward Equilibrium
Increase Equilibrium price
Excess Supply
Decrease Equilibrium price
No Impact
Increase Equilibrium quantity
Increase toward equilibrium
Decrease Equilibrium quantity
Change in price uncertain
Shift inwards/ to the left
Excess Demand
Change in quantity uncertain
Shift outward/ to the right

pucealligator309

ECON 1000 Lecture Notes - Lecture 4: Price Ceiling, Economic Equilibrium, Price Floor

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