MICRO 2 p3 government price control (1) được đánh số

A price ceiling above the equilibrium price is not binding — has no effect on the market outcome... A price floor below the equilibrium price is not binding – has no effect on the m

1

2

Market equilibrium:

P = $30

Q = 15 (thousand)

CS: Consumer surplus

PS: Producer’s surplus

TS:Total surplus

10 20 30 40 50 60

0 5 10 15 20 25 30

P

Q

S

D

CS PS

A price ceiling above the equilibrium

price is not binding — has no effect on

the market outcome

P

Q D

S

$800

300

Price ceiling

$1000

P

Q D

S

$800

Price ceiling

$500

250 400

shortage

The equilibrium price ($800) is above the ceiling and therefore illegal The price

ceiling is binding , causes a shortage

Deadweight loss

4

A price floor below the equilibrium price

is not binding – has no effect on the

market outcome

W

L D

S

$6.00

500

Price floor

$5.00

W

L D

S

$6.00

Price floor

$7.25

400 550

labor surplus

The equilibrium wage ($6) is below the floor and therefore illegal The price

floor is binding , causes a surplus.

Deadweight loss

5

Items Market Ceiling

Price Quantity demanded Quantity supplied Surplus/shortage Consumer’s surplus Producer’s surplus Dead weight loss Total surplus

A

D P

Q

P*

Q*

C

E Binding Price Ceiling

S

PC

How price control

affects welfare

6

D P

Q

P*

Q*

B

D

C

E

Binding Price Floor

S

PF

Items Market Floor

Price Quantity demanded Quantity supplied Surplus/shortage Consumer’s surplus Producer’s surplus Dead Weight loss Total surplus

How price control

affects welfare

7

1 A price ceiling is binding when it is set

a above the equilibrium price, causing a shortage

b above the equilibrium price, causing a surplus

c below the equilibrium price, causing a shortage

d below the equilibrium price, causing a surplus

2 A binding price ceiling

(i) causes a surplus

(ii) causes a shortage

(iii) is set at a price above the equilibrium price

(iv) is set at a price below the equilibrium price

a (ii) only

b (iv) only

c (i) and (iii) only

d (ii) and (iv) only

3 Suppose the equilibrium price of a physical examination

("physical") by a doctor is $200, and the government

imposes a price ceiling of $150 per physical As a result of

the price ceiling,

a the quantity of physicals demanded increases

b there is shortage of physicals

c the quantity of physicals supplied decreases

d All of the above are correct

4 If a nonbinding price floor is imposed on a market, then

the

a quantity sold in the market will decrease

b quantity sold in the market will stay the same

c price in the market will increase

d price in the market will decrease

5 A binding price floor

(i) causes a surplus

(ii) causes a shortage

(iii) is set at a price above the equilibrium price

(iv) is set at a price below the equilibrium price

a (i) only

b (iii) only

c (i) and (iii) only

d (ii) and (iv) only

6 Suppose the equilibrium price of a tube of toothpaste is

$2, and the government imposes a price floor of $3 per tube As a result of the price floor, the

a demand curve for toothpaste shifts to the left

b supply curve for toothpaste shifts to the right

c quantity demanded of toothpaste decreases, and the

quantity of toothpaste that firms want to supply increases

d quantity supplied of toothpaste stays the same 8

40 50 60 70 80 90 100 110 120 130 140

50 60 70 80 90 100 110 120 130 Q

P

S

0

The market for hotel rooms

D

Price controls

The market for hotel

rooms is in equilibrium as

in the graph.

• Determine the effects of:

A $90 price ceiling

B $90 price floor

C $120 price floor

loss (if any)

9

40 50 60 70 80 90 100 110 120 130 140

50 60 70 80 90 100 110 120 130 Q

P

S

0

The market for hotel rooms

D

A $90 price ceiling

The price falls to $90

(binding price ceiling below

the equilibrium)

- Buyers demand 120 rooms

- Sellers supply 90

- Shortage 30

- DWL = 10x15/2=75

10

shortage = 30

Price ceiling

10

40 50 60 70 80 90 100 110 120 130 140

50 60 70 80 90 100 110 120 130 Q

P

S

0

The market for hotel rooms

D

B $90 price floor

Equilibrium price is

above the $90 price

floor, so the price

floor is not binding

P = $100,

Q = 100 rooms

11

Price floor

11

40 50 60 70 80 90 100 110 120 130 140

50 60 70 80 90 100 110 120 130 Q

P

S

0

The market for hotel rooms

D

C $120 price floor

The price rises to $120

(binding price floor above

the equilibrium)

- Buyers demand 60 rooms,

- Sellers supply 120,

- Surplus 60 units

- DWL = 40x60/2=1200

12

surplus = 60

Price floor

12

= 200 – P, Supply Qs = P

a Draw the supply and demand curves

b Find the equilibrium quantity and price

c If government imposes ceiling price at 40, what will

happen, find the deadweight loss (if any)

d If government imposes floor price at 140, what will

happen, find the dead weight loss (if any)

13

• Demand: Qd = 200-P

• Supply: Qs = P

• Market Equilibrium:

• P = 100

• Q = 100

• Price Ceiling: 40 (binding)

• Qd = 160

• Qs = 40

• Shortage = 120

• DWL = 60x120/2=3600

• Price ceiling: 120 non-binding

100

40 40

160

0 20 40 60 80 100 120 140 160 180 200 220

• Demand: Qd = 200-P

• Supply: Qs = P

• Market Equilibrium:

• P = 100

• Q = 100

• Price floor: 140 (binding)

• Qd = 60

• Qs = 140

• Shortage = 80

• DWL = 80x40/2=1600

• Price floor: 60 non-binding

60 140

0 20 40 60 80 100 120 140 160 180 200 220