ECO 108 Lecture Notes - Lecture 17: Price Ceiling, Deadweight Loss, Economic Equilibrium

15 views2 pages

peachwoodchuck721

3 Aug 2018

School

University of Rochester

Department

Economics

Course

ECO 108

Professor

landsburg

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Price ceiling = a maximum legal price for a product. The equilibrium price of a widget is . With a price ceiling, suppliers supply only. 80 widgets, but demanders want to buy 120. Therefore demanders compete among themselves for the limited supply of widgets, for example by trying to outwait each other in line. The cost of that competition (for example, the value of the time spent in line) adds to the full price that demanders feel like they are paying for a widget. If it costs in cash plus in waiting time to get a widget, then buyers feel like they are paying a total of and demand 110 widgets more than the 80 that are available. If it costs in cash plus in waiting time, then buyers feel like they are paying a total of and demand 90 widgets still more than the 80 that are available.

Related Questions

On Amazon.com, there are three versions of Keynes' famous General Theory: a hardcover for $19.79, a paperback for $8.82, & a Kindle version for $2.99. There is not much difference in the cost of production between hardcover & paperback books (there likely is for the Kindle e-book version), but hardcover books do tend to be published earlier than paperback versions of the same book.

How do you explain the wide variety of prices for basically the same book?

A. Even though the cost of production between hardcover and paperback is small, demand is highly elastic, so this small cost difference results in a large price difference. The cost difference between paperback and e-books is larger, resulting in the smaller gap between paperback and e-book prices.

B. The market for hardcover books has more demand and less supply than the market for paperbacks, which likewise has more demand and less supply than the market for e-books. The equilibrium prices all reflect these differences.

C. Price discrimination between demanders. High demanders are willing to pay a high price for a hardcover that is published early. Low demanders aren't, and are only willing to pay a low price for the later paperback. It is much cheaper to produce the Kindle version (MC probably close to zero), and not many buyers (people with Kindles, less D) lead to the lowest price.

D. Price discrimination between demanders. Kindle owners are high demanders since the format is not compatible with anything but Kindles. Hardcover buyers are low demanders since there aren't many who would want a hardcover when paperbacks or e-books are cheaper. There are more paperback buyers, so they pay a price between these two extremes.

champagnemule886

Eurasia, a small country has a market for widgets. The demand for widgets is described as P=50-5Q^D. The demand for widgets is described as P=10+3Q^S.

A) What are the equilibrium price and quantity in autarky?

B) Eurasia opens to trade. The world price for widgets is 20. How much is imported into Eurasia?

C) Suppose a tariff of 2 is added. How much less is imported?

D) Show that Eurasia is better off without the tariff than with the tariff when they are trading

orchidbear690

Eurasia, a small country has a market for widgets. The demand for widgets is described as P=50-5Q^D. The demand for widgets is described as P=10+3Q^S.

1. What are the equilibrium price and quantity in autarky?

2. Eurasia opens to trade. The world price for widgets is 20. How much is imported into Eurasia?

3. Suppose a tariff of 2 is added. How much less is imported?

4. Show that Eurasia is better off without the tariff than with the tariff when they are trading.

upstairsatom

ECO 108 Lecture Notes - Lecture 17: Price Ceiling, Deadweight Loss, Economic Equilibrium

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO 108 Lecture 9: One Class ECON 9

ECO 108 Lecture Notes - Lecture 21: Deadweight Loss, Economic Surplus

ECO 108 Lecture Notes - Lecture 15: Deadweight Loss, Economic Surplus, Demand Curve

Related Questions