The market for coffee beans is described by the following equations: Qs = 2P – 8 Qd = 16 – P

The market for coffee beans is described by the following equations:

Qs = 2P – 8

Qd = 16 – P

a) Suppose the government sets a price ceiling at $10. Is there a shortage? Is there a surplus?

b) The government lowers the price ceiling to $5. Describe the changes in shortage/surplus.

c) Now suppose a price floor/ceiling has been instituted, which causes a surplus of 9 units. Is this a floor or a ceiling? What specific price would create this surplus?

Solutions

Expert Solution

a) No shortage, no surplus - The price ceiling (a maximum price) is set above the market price, so it does not change the market equilibrium, which is P = $8 and Q = 8.

b) Shortage of 9 - With a price ceiling of $5, producers supply only 2 units of coffee beans. Consumers demand 11 units.

c) Price floor, P = $11 - We must find the price at which the horizontal distance between quantity supplied and quantity demanded is 9. Supply must be greater than demand for this to be a surplus.

Qs – Qd = 9 = (2P - 8) - (16 - P)

3P – 24 = 9

3P = 33

P = 11

Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result

Joes answered 2 years ago

Next > < Previous

Related Solutions

The market for hotels in Sacramento is described by the following equations: Qd=80−P and Qs=2P−100 (a)...

The market for hotels in Sacramento is described by the following equations: Qd=80−P and Qs=2P−100 (a) What is the equilibrium price and quantity? (b) Suppose the city places a $2 tax on hotel rooms. How much do consumers now pay? How much do producers receive? How much tax revenue is raised by the tax? (c) Based on your answer to part (b) is supply or demand more elastic?

A market is described by the following supply-and-demand curves: QS = 2P QD = 300−P The...

A market is described by the following supply-and-demand curves: QS = 2P QD = 300−P The equilibrium price is_______and the equilibrium quantity is________. Suppose the government imposes a price ceiling of $90. This price ceiling is [binding/not binding], and the market price will be______. The quantity supplied will be ______ , and the quantity demanded will be_______. Therefore, a price ceiling of $90 will result in [a shortage/ a surplus/ neither a shortage nor surplus]. Suppose the government imposes a...

Suppose that a market is described by the following supply and demand equations: QS = 2P...

Suppose that a market is described by the following supply and demand equations: QS = 2P QD = 400 - 2P Suppose that a tax of $40 is placed on buyers, so the new demand equation is: QD = 400 – 2(P + 40) a) Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold? Calculate the new consumer surplus, producer surplus and total surplus. b) Calculate the...

Suppose that a market is described by the following supply and demand equations: Qs = 2P...

Suppose that a market is described by the following supply and demand equations: Qs = 2P Qd = 300 – P A Php 1-tax is imposed on buyers, and another Php 1-tax is imposed on sellers. 1. Calculate the price received by sellers 2. Calculate the price received by sellers 3. Calculate the quantity sold in the market 4. Calculate the government's tax revenue 5. Calculate the loss in economic efficiency as a result of the tax 6. Calculate the...

Suppose the market for corn is given by the following equations for supply and demand: QS = 2p − 2 QD = 13 − p

Suppose the market for corn is given by the following equations for supply and demand: QS = 2p − 2 QD = 13 − p where Q is the quantity in millions of bushels per year and p is the price. Calculate the equilibrium price and quantity. Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price. Calculate the price-elasticity of demand and supply at the equilibrium price/quantity. The government judges the...

The demand and supply equations for a product are given by QD = 20-P QS = -10 +2P

The demand and supply equations for a product are given by QD = 20-P QS = -10 +2P 1. Calculate the equilibrium price and quantity. 2. Calculate the price elasticity of demand and the price elasticity of supply at the above equilibrium point. 3. An excise tax of $1 per unit is imposed on the producers of the product. Calculate the new equilibrium price and quantity. Calculate the consumer and producer tax burden ( as a percentage of...

The following is the quantity demanded and quantity supplied equation in the market. Qs=2p, Qd=12-p

The following is the quantity demanded and quantity supplied equation in the market. Qs=2p, Qd=12-p What is the market equilibrium price and supply for the market above? If there was a tax of 6 dollars on firms how much will the firms receive from the buyers ( the price they get) , how much will consumers pay for good, how much will the government make in revenue? What types of goods tend to be inelastic? Should the government tax...

QD=40-2P and QS=P-8 represent market demand and supply functions for a good. If each unit of...

QD=40-2P and QS=P-8 represent market demand and supply functions for a good. If each unit of the good produced involves external costs of $4 (i.e. MEC=4), then (a) what amount of good is produced in the market equilibrium? (b) What are marginal social benefits(MSB) and marginal social costs (MSC) at the market equilibrium quantity?

Using the equations shown below, answer the following questions. QD = 100 – 2P QS = –20 + 2P

Using the equations shown below, answer the following questions. QD = 100 – 2P QS = –20 + 2P a. What is the equilibrium price and quantity in this market? Show it graphically. b. Calculate the consumer surplus and producer surplus? Show them graphically. c. Assuming a tax of $10 is imposed on the seller side, what is the equilibrium price and quantity after the tax? d. Calculate the deadweight loss and total surplus and show them graphically.

A market is described by the equation Qd=100-P and Qs=P. A tax of $10 is placed...

A market is described by the equation Qd=100-P and Qs=P. A tax of $10 is placed on the seller of the product such that he will receive less to take home than the original equilibrium price. Therefore, the new supply equation becomes Qs=(p-t). Does the seller pay the whole $10 of the tax burden? How much does the seller pay? How much does the buyer pay? Why do they split the burden this way?

Subjects