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ECON 1B03 (303)
Chapter 6

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Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes
Semester
Winter

Description
SUPPLY DEMAND AND GOVERNMENT POLICIES6Problems and Applications1If the price ceiling of 40 per ticket is below the equilibrium price then quantity demanded exceeds quantity supplied so there will be a shortage of ticketsThe policy decreases the number of people who attend classical music concerts since the quantity supplied is lower because of the lower price2aThe imposition of a binding price floor in the cheese market is shown in Figure 3In the absence of the price floor the price would be P and the quantity would be QWith the 11floor set at P which is greater than P the quantity demanded is Q while quantity f12supplied is Q so there is a surplus of cheese in the amount QQ332bThe farmers complaint that their total revenue has declined is correct if demand is elasticWith elastic demand the percentage decline in quantity would exceed the percentage rise in price so total revenue would declinecIf the government purchases all the surplus cheese at the price floor producers benefit and taxpayers loseProducers would produce quantity Q of cheese and their total 3revenue would increase substantiallyBut consumers would buy only quantity Q of 2cheese so they are in the same position as beforeTaxpayers lose because they would be financing the purchase of the surplus cheese through higher taxes Figure 33aThe equilibrium price of Frisbees is 8 and the equilibrium quantity is 6 million Frisbees109
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