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ENC assignment instructions Week 2 due 4/12/14 Chapter 3 problems 4,6,11 4. Given the following data on gasoline supply and demand, (a) What is the equilibrium price? (b) How large a market shortage would exist if government set a price ceiling of $2 per gallon? Price per gallon $5.00 $4.00 $3.00 $2.00 $1.00 $5.00 $4.00 $3.00 $2.00 $1.00 Quantity demanded (gallons per day) Quantity supplied (gallons per day) Al 1 2 3 4 5 Firm A 3 3 22 1 Betsy 0 1 1 1 2 Firm B 7 5 3 3 2 Casey 2 2 3 3 4 Firm C 6 4 3 3 1 Daisy 1 3 4 4 6 Firm D 6 5 3 2 0 Eddie 1 2 2 3 5 Firm E 4 2 2 2 1 Market total_____ Market total_____ 6. Illustrate what’s happening to oil prices in the World View on page 63. (a) Which direction did the demand curve shift (left or right)? (b) Which direction did the supply curve shift (left or right)? (c) Did price (A) increase or (B) decrease? Page 63 Market Incentives. Monetary incentives could also play a role. When blood donations are inadequate, hospitals and medical schools buy blood in the marketplace. People who might not donate blood come forth to sell blood when a price is offered. In principle, the same incentive might increase the number of organ donors. If offered cash now for a postmortem organ, would the willingness to donate increase? The law of supply suggests it would. Offer $1,000 in cash for signing up, and potential donors will start lining up. Offer more, and the quantity supplied will increase further. Zero Price Ceiling. The government doesn’t permit this to happen. In 1984 Congress forbade the purchase or sale of human organs in the United States (the National Organ Transplantation Act). In part, the prohibition was rooted in moral and religious convictions. It was also motivated by equity concerns—the FOR WHOM question. If organs could be bought and sold, then the rich would have a distinct advantage in living. The prohibition on market sales is effectively a price ceiling set at zero. As a consequence, the only available organs are those supplied by altruistic donors—people who are willing to supply organs at a zero price. The quantity supplied can’t be increased with (illegal) price incentives. In general, price ceilings have three predictable effects: they • Increase the quantity demanded .• Decrease the quantity supplied. • Create a market shortage. The Deadly Shortage. Figure 3.8 illustrates the consequences of this price ceiling. At a price of zero, only the quantity q a of “altruistic” organs is available (roughly one-third of the potential supply). But the quantity q d is demanded by all the organ-diseased individuals. The market shortage q d ? q a tells us how many patients will die. The News on the next page argues that many of these deaths are unnecessary. Without the government-set price ceiling, more organ-diseased patients would live. Figure 3.8 shows that q E people would get transplants in a market-driven system. In the government regulated system, only the quantity of q a of transplants can occur. Why does the government impose price controls that condemn more people to die? Because it feels the market unfairly distributes available organs. Only people who can afford the price p E end up living in the market-based system—a feature regulators say is unfair. In the absence of the market mechanism, however, the government must set other rules for who gets the even smaller quantity of organs supplied. That rationing system may be unfair as well. price ceiling: An upper limit imposed on the price of a good. FIGURE 3.8 Organ Transplant Market A market in human organs would deliver the quantity q E at a price of p E . The government-set price ceiling ( p 5 0) reduces the quantity supplied to q a . 11. Use the following data to draw supply and demand curves on the accompanying graph. Price $ 87654 3 21 Quantity demanded 2 3 4 5 6 7 8 9 Quantity supplied 10 9 8 7 6 5 4 3 (a) What is the equilibrium price? (b) If a minimum price (price floor) of $6 is set, (i) What kind of disequilibrium situation results? (ii) How large is it? (c) If a maximum price (price ceiling) of $3 is set, (i) What disequilibrium situation results? (ii) How large is it? $ Quantity units per period Week 3 due 4/19/14 Chapter 19 problems 6,8,9,106. The following data reveal how much each consumer is willing to pay for an Ala s kan cruise: Amy $ 900 Ed $2,000 Bob $1,100 Gigi $1,300 Carol $1,500 Hugo $1,800 Eduardo $ 400 Isabelle $1,500 (a) Draw the market demand for these eight consumers on the accompanying graph. (b) If the cruise costs $1,000, how many passengers will there be? (c) If the cruise costs $1,000, how much total revenue will be collected? (d) If the cruise costs $1,000, how much consumer surplus will those passengers enjoy? (e) If the cruise ship could perfectly price discriminate, how much more revenue could it take in? 0 1 2 3 4 5 6 7 8 9 10 On this chart 2000 is at the top and it goes down by 100 to 0 on the left hand side. 8. Suppose the graph on the next page depicts the demand for football tic k ets at Grand University. (a) What is total revenue at the price of $24? $ (b) If the price drops to $12, how many tickets would consumers purchase? (c) What is total revenue at that point? $ (d) If the team has a winning streak and the price is still $24, at what point do we end up? (e) What is total revenue at that point? $ 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10K 11K 12K Tickets per game On the left side starting at the top is $36, 32, 28, 24, 20, 16, 12, 8, 4, 0Fis at 32 and 2200 T is at 24 and 2000 A is at 24 and 5000 M is at 20 and 6200 R is at 16 and 7500 H is at 12 and 5000 G is at 12 and 9000 W is at 24 and 8000 9. Suppose the following table reflects the total satisfaction derived from co n sumption of pizza slices and Pepsis. Assume that pizza costs $1 per slice and a large Pepsi costs $2. With $20 to spend, what consumption mix will maximize satisfaction? _____ pizza slices and _____ large Pepsi amount consumed 1 2 34 567891011121314 Total units of pleasure From pizza slices 47 92 132 166 196 224 251 271 288 303 313 315 312 300 Total units of pleasure from Pepsi 111 200 272 336 386 426 452 456 444 408 340 217 92 -17 10. Use the following data to illustrate the relevant demand curve: Price $ 1 2 3 4 5 6 7 8 9 10 Quantity 20 18 16 14 12 10 8 6 4 2 (a) If the price increases from $4 to $8, by how much does the quantity demanded decline? (b) If a successful advertising campaign increases the quantity demanded at every price by 4 units, (i) Draw the new demand curve D 2 .(ii) How many units are now purchased at $80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quantity units per period On the left side of this chart is $10 down to 0 priceChapter 20 problems 4,5,6,11,12 4. Suppose consumers buy 30 million packs of cigarettes per month at a price of $4 per pack. If a $1 tax is added to that price, ( a ) By what percentage does price change? (Use the midpoint formula on p. 439.) % ( b ) By what percentage will cigarette sales decline in the short run? (See Table 20.1 for a clue.) % ( c ) According to Gary Becker, by how much will sales decline in the long run? (News, p. 443.) % 5. From Figure 20.1, compute ( a ) the price elasticity between each of the following points and ( b ) the total revenue at each point. Price Elasticity Total Revenue Point D to E At point D E G to H G H 6. If the price of a pack of cigarettes (including taxes) was $4 before the 2009 tax hike (see the News, p. 441), ( a ) What was the price after the tax hike? ( b ) What was the (average) percentage increase in price? ( c ) What was the price elasticity of demand? 11. Use the following data to illustrate the ( a ) demand curve and ( b ) total revenue curve: Price $ 1 2 3 4 5 6 7 8 9 10 Quantity 20 18 16 14 12 10 8 6 4 2 ( a ) At what price is total revenue maximized? $ ( b ) At that price, what is the elasticity of demand? E 5 ( c ) Between what prices is demand elastic? 12. On the graphs below, show the impact of the price reduction for iPhones , as described in the News on pages 441 and 447.Week 4 due 4/26/14 Chapter 21 problems 1,4,5Chapter 22 problems 3,4,8,9 Week 5 due 5/3/14 Chapter 6 problems 7,8,12,13Chapter 7 problems 5.6.7 Week 6 due 5/10/14 Chapter 13 problems 2,3,9Chapter 14 problems 3,6,11 Week 7 due 5/17/14 Chapter 35 problems 2 and 7 Chapter 36 problems 8.9.11 Views (5)
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