EC120 Chapter Notes - Chapter 6: Demand Curve, Minimum Wage Law, Price Ceiling

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plumbeaver231

17 Oct 2012

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Because buyers of any good want a lower price, while sellers want a higher price, the interests of the two groups conflict. The buyers of the good (canadian association of ice-cream eaters) complains that the price is too high for everyone to enjoy a cone a day the daily recommendation. Organization of ice cream makers complain that the price the result of cutthroat competition is too low and depressing the income of its members. If the ice cream eaters are successful in their lobbying, the government imposes a legal maximum or the price at which the ice cream can be sold. Because the price is not allowed to rise above this level, the legislated maximum is called a price ceiling. If the ice cream makers are successful the government imposes a legal minimum on the price. Because the price cannot fall below this level, the legislated minimum is a price floor.

Related Questions

The demand for ice cream is given by Q D = 20 - 2P, measured in gallons of ice cream. The supply of ice cream is given by Q S = 4P - 10. Suppose that the government legislates a $1 tax on a gallon of ice cream, to be collected from the seller.

a) As a result of the tax, what is the price paid by buyers?

b) What is the price received by sellers?

Hint: You need to determine the consumer and producer burden of the tax. First, find the equilibrium price and quantity. Then, determine the elasticity of demand and supply. Then, use the share of the tax formula provided to you to determine the burdens. After, that you add the consumer burden to the equilibrium price to find the buyer price. Subtract the producer burden from equilibrium price to find seller price.

olivemoose752

At the equilibrium price, the quantity of the good that buyers are willing and able to buy:

A. is greater than the quantity that sellers are willing and able to sell.
B. exactly equals the quantity that sellers are willing and able to sell.
C. is less than the quantity that sellers are willing and able to sell.
D. Either A or B could be correct.

burgundybutterfly957

Suppose the market for widgets can be described by the following equations:

Demand: P = 14 1.00Q
Supply: P = 1.00Q + 6,

Where P is the price in dollars per unit and Q is the quantity in thousands of units. What are the equilibrium price and quantity? The equilibrium quantity is ______ units and the equilibrium price is $______.

Suppose the government imposes a tax of $1 per unit to reduce widget consumption and raise government revenues. What will be the new equilibrium quantity? What price will the buyer pay? What amount will the seller receive?

The new equilibrium quantity will be __________.
The price paid by buyers will be $__________.
The amount kept by sellers will be $__________.

brownalligator960

EC120 Chapter Notes - Chapter 6: Demand Curve, Minimum Wage Law, Price Ceiling

EC120 Full Course Notes

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