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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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The following table depicts the quantity demanded and quantity supplied of studio apartments in a small college town.
What are the market price and equilibrium quantity of apartments in this town? If this town imposes a rent control of $650 per month, how many studio apartments will be rented?
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?
Suppose that government places a ceiling on the price of a medical drug below the equilibrium price.
a. Show why there is a shortage of the medical drug at the new ceiling price.
b. Suppose that a black market for the medical drug arises, with pharmaceutical firms secretly selling the drug at higher prices. Illustrate the black market for this medical drug, including the implicit supply schedule, the ceiling price, the black market supply and demand, and the highest feasible black market price.
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?
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.
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