6. One of the hardest issues to understand is why manipulating prices as means of controlling short term undesirable market trends is dangerous and unpopular. This is what happens when price controls are used instead of encouraging demand and supply to alter. In the graph below, assume that $2.50 is too high of a price. The options proposed include imposing a price ceiling of $2.00 (Pc). Explain why the market solution below as presented by the graph is much better than imposing a price ceiling at $2 to bring down the price. Answer: 3.5 3- S₁ 2.5 EX 2- 1.5- D₂ 0.5- D₁ 5 T 10 20 30 40 50 60 70 80 Exchange Rate of Peso Measured in U.S. Dollars/Peso Quantity of Pesos Traded on Foreign Exchange markets

6. One of the hardest issues to understand is why manipulating prices as means of controlling short term undesirable market trends is dangerous and unpopular. This is what happens when price controls are used instead of encouraging demand and supply to alter. In the graph below, assume that $2.50 is too high of a price. The options proposed include imposing a price ceiling of $2.00 (Pc). Explain why the market solution below as presented by the graph is much better than imposing a price ceiling at $2 to bring down the price. Answer: 3.5 3- S₁ 2.5 EX 2- 1.5- D₂ 0.5- D₁ 5 T 10 20 30 40 50 60 70 80 Exchange Rate of Peso Measured in U.S. Dollars/Peso Quantity of Pesos Traded on Foreign Exchange markets

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Application: The Cost Of Taxation

Section: Chapter Questions

Problem 10PA

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12. Consider the data in the table below when you answer this question. (As the table suggests, the demand curve for this continuous good is a straight line and so is the supply curve. Factor that into your calculation.) P Qs $12 12 $10 $8 $6 $4 $2 4 10 8 8 12 16 4 20 2 Suppose the price is $8 but that only 4 pizzas are bought and sold due to regulations imposed by the government. The most social surplus that can be generated is a. $20. b. $30. c. $36.
An alternative way of thinking about the forces that cause markets to equlibrate in the real world is to think of markets reallocating the good from low to high valued use. Or to think of how the action of buyers and sellers engaging in mutually beneficial voluntary exchange (market forces) reallocates legal ownership or the physical location of the good from low to high valued used. Consider the demand at a price of $9. 12 10 8 6 4 2 0 02 units 10 20 30 40 Price 10 9 8 7 6 5 4 3 2 Price 10 9 1 8 7 6 5 4 3 2 1 Ying 0 0 0 0 1 1 Boom 1 0 0 0 0 0 0 0 0 0 1 1 1 1 Som 0 0 0 0 3 3 3 5 5 7 Oiy 7 5 5 3 3 0 0 0 0 0 Quantity Demanded Fon Nam 0 0 0 0 1 2 3 5 0 0 0 4 6 7 8 10 12 7 9 11 Quantity Supplied Cartoon Apple 6 11 5 9 4 7 3 5 2 3 1 2 0 1 0 0 0 0 0 0 Gob 0 1 2 4 6 8 8 10 10 10 Kai 10 10 10 8 8 6 4 2 Yam 0 1 2 4 5 5 5 Market Supply ➡Market Demand 1 0 5 5 7 Mint 7 5 5 5 5 5 4 2 Market Demand 0 2 4 9 21 26 29 36 40 48 1 0 Market Supply 42 34 31 24 21 14 9 4 2 0 2 units of the good are demanded…
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2. Consider the demand and supply functions Qs = -400 + 20P Qd = 1,400 – 10P (Qd and Qs are in unit quantities and price is in rupees) Interpret demand and supply function there parameters and signs carefully in the following space -400 +20 1400 -10 3. Calculate equilibrium price and equilibrium quantity through solving equations in given space. Os = -400 + 20P Qd = 1,400 – 10P
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