Here are the supply and demand equations for throstles, where p is the price in dollars: D(p) = 40 − p S(p) = 10 + p 1. Draw the
demand and supply curves for throstles using blue ink. 2. What is the equilibrium price? What is the equilibrium quantity? 3. Suppose that the government decides to restrict the industry to selling only 20 throstles. At what price would 20 throstles be demanded? How many throstles would suppliers supply at that price? At what price would the suppliers supply only 20 units? 4. The government wants to make sure that only 20 throstles are bought, but it doesn’t want the firms in the industry to receive more than the minimum price that it would take to have them supply 20 throstles. One way to do this is for the government to issue 20 ration coupons. Then in order to buy a throstle, a consumer would need to present a ration coupon along with the necessary amount of money to pay for the good. If the ration coupons were freely bought and sold on the open market, what would be the equilibrium price of these coupons? 5. On the graph, shade in the area that represents the deadweight loss from restricting the supply of throstles to 20. How much is this expressed in dollars?
1 answer:
Answer:
1. p*=15 ; q*=25
2. Only 20 units are supplied at p=10
3. The ration coupon will cost 10
Explanation:
Considering the following formulas given by the exercise:
D=40-p
S= 10+p
1) Equilibrium price from graph = 15
Equilibrium quantity from graph = 25
2) From the graph only 20 units are demanded at 20 while at p=20 supply is 30. Only 20 units are supplied at p=10
3) The ration coupon will cost 20-10 = 10
You might be interested in
Answer:
<em>1. In this labor market, a minimum wage of $9.00 is binding : </em><em>FALSE</em>
<em>2. In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium : </em><em>TRUE</em>
<em>3. If the minimum wage is set at $12.50, the market will not reach equilibrium : </em><em>TRUE</em>
<em>4. Binding minimum wages cause frictional unemployment : </em><em>FALSE</em>
Explanation:
<em><u>Question has been attached here</u></em>
Unemployment is the term used to define those who are willing and are actively seeking work but cannot find any. A minimum wage is a price control, in the form of a price floor imposed by government legislation in order to protect laborers from low wages. Paying anything below the minimum wage is against the law.
<em>1. In this labor market, a minimum wage of $9.00 is binding : </em><em>FALSE</em>
A minimum wage is binding only if it is set above the equilibrium price. In this scenario, the equilibrium price is at $12. Hence, $9 is not binding since a shortage of labor would gradually raise the price to the equilibrium.
<em>2. In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium : </em><em>TRUE</em>
When there is a shortage in the market, it means that the quantity supplied is higher than the quantity demanded. With any particular commodity such as bread or rice, a shortage creates a rise in price. Just as that, a shortage of workers creates an upward pressure on the price (wage). Since there are no price ceilings, market will reach equilibrium.
<em>3. If the minimum wage is set at $12.50, the market will not reach equilibrium : </em><em>TRUE</em>
As shown in the diagram, the market equilibrium is $12. If the minimum wage was $12.50, there would be a surplus of labor (quantity supplied is higher than quantity demanded). Naturally, this may cause a downward pressure on wages until it reaches $12. However, when a minimum wage is imposed at $12.50, it cannot fall below that level. Thus, the market will not reach the equilibrium.
<em>4. Binding minimum wages cause frictional unemployment : </em><em>FALSE</em>
Frictional unemployment is a type of unemployment that occurs when workers are temporarily unemployed while switching between jobs. It is normal and occurs even in the healthiest of economies. A binding minimum wage is more likely to cause structural unemployment. This occurs when there is a mismatch between the skills of the labor force and the skills expected to be possessed by employers to do a particular job. Hence, even if jobs are available, the laborers are not suited to do them and thus are unemployed.
