Unit 7—Market Intervention: Price Ceilings and Floors,
Taxes
Suppose that the demand curve for coffee is Q=10-P and
the supply curve is Q=P. Draw the supply and demand curves
below.
What is the equilibrium price and quantity?
Equilibrium price= $5, equilibrium quantity=
$5
What is total surplus, consumer surplus, and producer
surplus?
Suppose the government implemented a price floor at $7
per cup of coffee.
Identify the new quantities demanded and supplied and
any surplus or shortage of coffee. What...
In your own words, explain the difference between price
ceilings and price floors. Why would an economy use them? Who is
hurt by each one and why? Who is helped by each one and why?
Why would the government support price ceilings and price
floors knowing that they are inefficient? What might they be trying
to accomplish?
discuss price ceilings and price floors. They are responses by
government to market failures. The text discusses rent control and
minimum wage. Another application is limits often set by states,
called usury laws, that limit the maximum interest rates that can
be charged to borrowers. In some states, like Arkansas, this has
resulted in the elimination of "pay day loans" and has shut down an
industry. Consider the results of this price ceiling.
Are the economic effects worth the price?
What are the pros and cons of using price ceilings and price
floors. Why would a government choose to use price ceilings and
price floors? Why would economists argue against their use?
Do you think that the intervention by the government in
implementing price ceilings or price floors is justified in today's
time; why or why not? Are the consumers getting what they want; why
do you believe this to be so? Are the suppliers able to sell what
they produce; why do you think so?
Use an example from another country besides United States to
justify your reasoning.
Do you think that the intervention by the government in
implementing price ceilings or price floors is justified in today's
time; why or why not? Are the consumers getting what they want; why
do you believe this to be so? Are the suppliers able to sell what
they produce; why do you think so?
Use an example from another country besides United States to
justify your reasoning.
Price controls (price floors and price ceilings) are a commonly
used tool on behalf of governments to intervene in the way markets
are operating.
Discuss whether price controls are an effective way to intervene
to the market.
How is the use of price controls distorting the operation of
markets?
Provide examples of countries that have used price controls to
affect the way various markets operated.
Analyze both price floors and price ceilings.
Which of the following statements is (are) correct?
(x) Price ceilings and price floors usually reduce the welfare of
society because quantity demanded does not equal quantity supplied
if the price control is binding.
(y) The particular price that results in quantity supplied being
equal to quantity demanded is the best price because it maximizes
the welfare of buyers and sellers.
(z) A result of welfare economics is that the equilibrium price of
a product is considered to be the...
Answer the questions below:
1) It is claimed that price floors and price ceilings both
reduce the actual quantity exchanged in a market. Use a diagram or
diagrams to support this conclusion, and explain the common sense
behind it.
2) Explain why an effective minimum wage law that is not changed
over time may eventually become ineffective as demand for workers
increases.
3) Last October, the highest-paying passenger on United Flight
815 from Chicago to Los Angeles paid $1,248.51. The...
Price controls can be divided into two opposing categories:
Price Ceilings and Price Floors. Lets discuss the need for controls
and the effect on the efficient market. What would be the effects
of using price controls to intervene in a "well functioning,
competitive market"? Who are the "winners and losers" in price
floors and ceilings? Give examples.