Question

A local government just passed a price regulation, saying that a product cannot be charged less...

A local government just passed a price regulation, saying that a product cannot be charged less than $500 where the previous equilibrium price was $350. How would this policy affect the market outcome? Explain with the help of a graph.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

At price floor of 500, quantity demanded is Qd and quantity supplied is Qs. This creates a surplus of Qs-Qd which leads to deadweight loss in the economy, shown as shaded triangle. This is the total surplus earlier available under free market equilibrium. Thus rather than helping producers, price floor end up hurting producers by creating Surplus.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the following scenario - government policy sets a fixed/universal price for wheat at $5 per...
Consider the following scenario - government policy sets a fixed/universal price for wheat at $5 per bushel. In the absence of this policy, the market equilibrium price for wheat (i.e., the price where Quantity Demanded equals Quantity Supplied) is $6 per bushel. Given these market conditions, explain the economic consequences of this price policy. Be sure to draw a graph as part of your answer!
15. Consider a simple product market with constant price and no international trade. Investment and government...
15. Consider a simple product market with constant price and no international trade. Investment and government expenditures are exogenously given. The marginal propensity to consume is between zero and one. Ignore the money market (or assume that the interest rate is constant). Now suppose autonomous savings increase (that is autonomous consumption declines). a. Show graphically how this shock would affect the equilibrium levels of income and consumption. Explain your answer. b. What would be the impact of this shock on...
[5] One reason buyers demand less of a product as its price increases is: A) substitute...
[5] One reason buyers demand less of a product as its price increases is: A) substitute goods are usually available. B) high-priced goods place buyers in higher tax brackets. C) buyers must save more of their incomes as prices increase. D) sellers offer less of the product for sale as its price increases. [6] Which of the following explains why consumers purchase less of a good or service when its price increases? A) A limited income from which purchases can...
Suppose that the world price of cars is less than the domestic market equilibrium price in...
Suppose that the world price of cars is less than the domestic market equilibrium price in Italy. Further, suppose that the government decides to impose an import quota to decrease the number of cars imported into Italy. A. Using a graph, demonstrate the effect of the quota on the quantity demanded and supplied domestically and the equilibrium price, compared to the market equilibrium with free trade. B. Illustrate on your graph the area that represents lost consumer surplus due to...
Suppose the equilibrium price of gasoline is $3 per gallon. a. Using the demand and supply...
Suppose the equilibrium price of gasoline is $3 per gallon. a. Using the demand and supply graph, draw this equilibrium in the space below. Make this graph large, it will be used for future questions. b. Now suppose the government imposes a binding price ceiling on this market. Identify a value for this price ceiling that would be binding and show it on the graph. Graphically show whether excess demand or excess supply would result. c. With the price ceilings,...
Suppose that market for good X is free and competitive, where the equilibrium price and quantity...
Suppose that market for good X is free and competitive, where the equilibrium price and quantity are $30 per tops and 10 million tons per year respectively. The producers of good X complain to the government that the current market price is too low to provide them with sufficient income, and they want the government to set a price floor of $40 per ton and to purchase all resulting surplus in order to guarantee that the price support is maintained....
A government has just imposed a binding price floor on the market for widgets. Anthony claims...
A government has just imposed a binding price floor on the market for widgets. Anthony claims that this policy will reduce the total revenue of widget manufacturers. Is Anthony correct? Yes. A binding price floor will always reduce the revenue of the producers. Maybe. A binding price floor will reduce the producer's revenue when demand is elastic. Given a model of a perfectly competitive market for unskilled labor, a minimum wage that is set above a market's equilibrium wage will...
Suppose that market for good X is free and competitive, where the equilibrium price and quantity...
Suppose that market for good X is free and competitive, where the equilibrium price and quantity are $30 per tops and 10 million tons per year respectively. The producers of good X complain to the government that the current market price is too low to provide them with sufficient income, and they want the government to set a price floor of $40 per ton and to purchase all resulting surplus in order to guarantee that the price support is maintained....
QUESTION 2 Government intervention that aims to promote technology-enhancing industries is called a. industrial technology assistance....
QUESTION 2 Government intervention that aims to promote technology-enhancing industries is called a. industrial technology assistance. b. intervention policy. c. assisted technology. d. industrial policy. 4 points    QUESTION 3 Which of the following statements is not correct? a. Government policies may improve the market's allocation of resources when negative externalities are present. b. Without government intervention, the market will tend to undersupply products that produce negative externalities. c. Government policies may improve the market's allocation of resources when positive...
3. Compared with perfect competitors, other things equal, imperfect competitors who cannot practice price discrimination will...
3. Compared with perfect competitors, other things equal, imperfect competitors who cannot practice price discrimination will tend to produce ____________ and charge a ______________ price. a. less lower b. less higher c. more same d. more lower e. more higher 4. Sometimes firms are able to charge different prices to different consumers. We call this “price discrimination.” Why might it be in a firm’s interest to charge some consumers a lower price than other consumers? 5. The demand for airline...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT