Question

1. Using the following supply and demand schedules:

Price                             Quantity Demanded                  Quantity Supplied

$2                                            200                                          50

$4                                            150                                          80

$6                                            125                                          100

$8                                            110                                          110

$10                                          80                                            135

1. Draw the market in a graph and indicate the point of equilibrium.
2. Show and explain the effect on this market of a price floor at $10
3. Show and explain the effect on this market of a price ceiling at $10

2. Explain, in your own words, why the production possibilities frontier (PPF) is a downward-sloping curve.  Also, explain why all points inside of that curve represent inefficient outcomes.
3. Draw a market which you believe would represent the market for a cure to the current Coronavirus.  Draw and explain what would happen to this market if an announcement was made that indicated the number of confirmed cases doubled over the weekend.
4. As an extension of #3, how would the approval of multiple vaccines effect the elasticity of demand overall and for each individual product?  Explain your thoughts as to what outcome would be best for all people in our country/world.
5. Assume the following production capabilities existed for each country using one week worth of labor:

Cars                              Computers

                        USA                              1,000                            500

                        China                            2,000                            4,000

1. Draw each production possibilities frontier.
2. Does either country have absolute advantage?  Explain.
3. Does either country have comparative advantage?  Explain.
4. Show a trade that benefits both countries, if one exists.  Explain.

6. Explain, in your own words, the impact of changing our current federal tax code to a proportional tax for personal income from the current progressive tax we have currently.  What you feel would be the impact on tax revenue, labor supply, etc.  Explain in detail.
7. Find an article published within the last 14 days that relates to our class in some way.  Write a short explanation as to how it relates.

Answer 1

a) With the figures provided, the downward sloping market demand curve D and the upward sloping market supply curve S can be shown iagramatically as:

The equilibrium quantity is 110 and the equilibrium price is 8, determined by the intersection of the demand and supply curve.

b) If a price floor is imposed at $10, so as to provide the further fall of the market prices. $10 is higher than the equilibrium price this creates a gulf between the demand and supply. At that higher price the supply exceed the demand. When the price is $10, the supply is 135 while the demand is only 80.

c) A market ceiling is imposed in an market so as to prevent the rising of prices above a certain limit. It is imposed below the equilibrium price. Here the equilibrium price is 8, but the ceiling is imposed at the price 10. The price would in any way or the other not rise above the equilibrium price 8. Thus the imposition of price ceiling above the equilibrium price makes no sense, and remains ineffective.