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Chapter 3: Q 29. (page 78)
Does a price floor attempt to make a price higher or lower?
Price floor attempts to make a price higher.
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Review Figure 3.4. Suppose the government decided that, since gasoline is a necessity, its price should be legally capped at $1.30 per gallon. What do you anticipate would be the outcome in the gasoline market?
Why do economists use the ceteris paribus assumption?
Use the four-step process to analyze the impact of a reduction in tariffs on imports of iPods on the equilibrium price and quantity of Sony Walkman-type products.
Table 19. 5 illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:
a. The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price.
b. A new study says that eating cheese is good for your health, so that demand increases by 20% at every price.
How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied?
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