ECON 101 Chapter Notes - Chapter 6: Ice Cream Cone, Price Ceiling, Price Floor

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tealcicada268

13 Dec 2016

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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: how price ceilings affect market outcomes. In panel a, the government imposes a price ceiling of per cone. In this case, because the price that balances supply and demand () is below the ceiling, the price ceiling is not binding. Market forces naturally move the economy to equilibrium, and the price ceiling has no effect on the price or the quantity sold. In equilibrium, quantity supplied and quantity demanded both equal 100 cones. In panel b, the government imposes a price ceiling of . Because the price ceiling is below the equilibrium price of , the market price equals . At this price, 125 cones are demanded and only 75 are supplied, so there is a shortage of 50 cones.

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

Place the following effects of a long-run binding price ceiling in the order they will occur.

Consumers see that they can save on each unit, while producers realize they will earn less

A binding price ceiling is imposed forcing open-market price below the natural equilibrium point

Quantity demanded increases and quantity supplied decreases

The shortages become so acute that consumers will choose substitutes

Market is a natural equilibrium where demand and supply curves cross

fuchsiahound634

Suppose the demand function for a product is Q= 200 -15P + 4I where P is the per-unit price of the good, I is median household income in thousands of dollars, and Q is the number of units demanded per month. Use the equation and assume that median family income remains at $30,000.

a. If the equation for the supply curve is Q = 40P - 10, calculate the equilibrium price and for this good. How much will be bought and sold?

b. If the government imposes a price ceiling at $5, Will a shortage or surplus result? How large will it be?

c. If the government instead imposes a price ceiling at $11, what will the impact be? Explain.

amaranthleopard704

ECON 101 Chapter Notes - Chapter 6: Ice Cream Cone, Price Ceiling, Price Floor

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