10. The type of non-price rationing that most closely approaches the market outcome is: A) favored...

10. The type of non-price rationing that most closely approaches the market outcome is:

A) favored customer rationing.

B) first-come, first-served basis or queuing.

C) coupon rationing with coupons that can be resold.

D) coupon rationing with coupons that cannot be resold.

Consider the market for generic soda, a product that only has “soda” on its label. We know that demand for generic soda falls when income increases, demand rises when the price of other soda increases, and that demand rises when the price of potato chips falls.

11. Refer to Scenario 1. Graph “soda” and explain the effect on equilibrium price and quantity on an increase in income. What type of good is “soda”?

12. Refer to Scenario 1. Graph “soda” and explain the effect on equilibrium price and quantity of an increase in the price of premium soda (ex: Pepsi). How are the goods related?

13. Refer to Scenario 1. Graph and explain the effect on equilibrium price and quantity of “soda” due to an increase in the price of potato chips. How are the goods related?

Solutions

Expert Solution

Q1. The price floor reduces the equilibrium quantity traded. Farmers who can find buyers will be better off while those who cannot are worse off.

Q2. (D) coupon rationing with coupons that can be sold

Explanation:

1. The price floor does not allow the price below it. If the initial equilibrium price is P0, then the price floor does not allow price to be below Pf. However at Pf, the quantity supplied exceeds the quantity demanded. Therefore, there are buyers than sellers in the market and there is surplus. The equilibrium quantity traded will be Qb <Q0.

The dairy farmers who can find buyers will receive the higher price Pf and therefore are better off. However, those farmers who cannot find a buyer will be worse off.

2. The type of non price rationing that most closely approaches the market outcome is (D) coupon rationing with coupons that can be resold. This will ensure that goods go to those who value them the most.

Rahul Sunny answered 22 hours ago

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