Homework 1pdf page 5 of 5 Using the midpoint method what is

Homework 1.pdf (page 5 of 5) Using the midpoint method, what is the cross price elasticity of demand for landline and mobile service? d. Consider the information in the table below for a typical market. Use the information from the table to answer the questions (a) through () below. 9. Quantity nded Supplied Price ($) 18 15 16 0 a if the government set a price ceiling at $2, would there be a shortage or surplus, and b. if the government set a price ceiling at $4, would there be a shortage or surplus, and c If the government set a price floor at $4, would there be a shortage or surplus, and d. If the government set a price floor at $2, would there be a shortage or surplus, and e. in this market, over what range of prices would a price ceiling set by the government f. In this market, over what range of prices would a price floor set by the government be g Why would policymakers choose to impose a price ceiling or price floor in this market? how large would be the shortage/surplus? how large would be the shortage/surplus? how large would be the shortage/surplus? how large would be the shortage/surplus? be binding? binding? Assuming, the government want to enact rent control laws. But since this policy might bring some inefficiency in the market, proposed a policy that the government can use to help renters other than the rental ceiling. h. i. Assuming the government want to enact minimum wage laws. But since this policy might bring some inefficiency in the market like can bring about unemployment to teens and unskilled workers, proposed a policy that the government can use to help workers other than the minimum wage law

Solution

Price Floor and Price Ceiling are two types of government intervention performed by the government in order keep the prices of a good at a certain level. Price ceilings are generally set below the equilibrium price and in case of a price ceiling, the price cannot rise above the ceiling price. Price Floors are generally set above the equilibrium price and in case of a price floor the market price can not fall below the floor price.

a) When the price ceiling is set at 2, it is clearly understandable from the table that there is a shortage by looking at the figures of quantity demanded and quantity supplied.

Shortage = 15 - 8 = 7 units.

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b) When the price ceiling is set at 4, it is clearly understandable from the table that there is a surplus by looking at the figures of quantity demanded and quantity supplied.

Surplus = 16 - 9 = 7 units.

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c) When the price floor is set at 4, it is clearly understandable from the table that there is a surplus by looking at the figures of quantity demanded and quantity supplied.

Surplus = 16 - 9 = 7 units.

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d) When the price floor is set at 2, there will be no shortage or surplus. In case of a price floor, the market price cannot fall below the floor price (2 in this case) but instead the firms can charge anything above the floor price (preferably the equilibrium price). From the given table we can see that the equilibrium price (that is the price at which quantity demanded equals quantity supplied) is 3. Thus, when the price floor is set at 2, the goverment cannot actively intervene the market and the firms can charge the equilibrium price. So, there will be no shortage or surplus in the market.