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Chapter 4: Q. 4.3 (page 75)
Understand the rationing function of prices
To adjust the mismatch in demand and supply by the change in prices.
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Advances in research and development in the pharmaceutical industry have enabled manufacturers to identify potential cures more quickly and therefore at lower cost. At the same time, the aging of our society has increased the demand for new drugs. Construct a supply and demand diagram of the market for pharmaceutical drugs. Illustrate the impacts of these developments, and evaluate the effects on the market price and equilibrium quantity.
In recent years,the government of Pakistan has
establishedasupport price for wheat of about
$0.20 per kilogram of wheat.At this price,con
sumers are willing to purchase 10 billion kilo
grams of wheat per year,while Pakistani farmers
are willing to grow and harvest 18 billion kilo
grams of wheat per year.The government pur
chases and stores all surplus wheat.
a.What are annual consumer expenditures on the
Pakistani wheat crop?
b.What are annual government expenditures on
the Pakistani wheat crop?
c.How much,in total,do Pakistani wheat farmers
receive for the wheat they produce?
The table below illustrates the demand and supply
schedules for seats on air flights between two cities:
What are the market price and equilibrium quantity in this market? Now suppose that federal
authorities limit the number of flights between the two cities to ensure that no more than 1,200 passengers can be flown. Evaluate the effects of this quota if price adjusts. (Hint: What price per
flight are the 1,200 passengers willing to pay?)
In recent years, technological improvements have greatly reduced the costs of producing basic cell phones, and a number of new firms have entered the cell phone industry. At the same time, prices of substitutes for cell phones, such as smartphones and some tablet devices, have declined considerably. Construct a supply and demand diagram of the market for cell phones. Illustrate the impacts of these developments, and evaluate the effects on the market price and equilibrium quantity.
The consequences of decriminalizing illegal drugs
have long been debated.Some claim that legal
ization will lower the price of these drugs and
reduce related crime and that more people will
use these drugs.Suppose some of these drugs are
legalized so that anyone may sell them and use
them.Now consider the two claims-that price
will fall and quantity demanded will increase.
Based on positive economic analysis,are these
claims sound?
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