Econ

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Economics 101-300
Homework Problems
Problems with answers at the end

Problems only:

1) The governor of Hawaii would like to make single-family apartments more affordable and considers implementing a perfectly enforced price ceiling at $1,500. You are hired as a consultant to analyze the effects of the policy on the market. Based on the supply and demand for housing shown below, what do you conclude? Apartments

Rent
2,500

2,000

1,500
500 1,0001,500
s
d
Apartments
Rent
2,500

2,000

1,500
500 1,0001,500
s
d

a) There no deadweight loss with the price ceiling
b) The deadweight loss is equal to $500,000
c) $250,000 of producer surplus is transferred to consumers d) $250,000 of consumer surplus is transferred to producers e) consumer surplus is smaller

2) The graph below shows the market for cabs in San Francisco, which is currently in equilibrium. Then, the city council decides that cabs produce too much smog and imposes a quota of just six thousand cabs. Cab drivers get the quota rent What is the difference between the original equilibrium producer surplus and the quota outcome producer surplus?

a) $9,000
b) $12,000
c) $5,000
d) -$21,000
e) -$2,000

3) The local government sets a price ceiling at P2 in order to regulate the housing rental market in the city of Ann Arbor. Look at the graph below and compare the price ceiling outcome with the equilibrium outcome (P1, Q1). Which of the following statements is not true?

f) The policy causes quantity demanded to exceed quantity supplied g) The policy results in a shortage
h) This policy sets the price below the equilibrium price i) This price ceiling is binding.
j) None of the above is false.

4) Suppose that in the market for eggs, the current equilibrium price is $2.00 per dozen. If the government imposes a price floor at $2.50 per dozen. Then, __________.

k) there will be a surplus of eggs in the market
l) there will be a shortage of eggs in the market
m) the price floor will have no effect on the market price or quantity sold n) the price of a dozen eggs will drop to $1.50 immediately o) consumers will buy more eggs.

5) All goods in Italy are priced in euros. Demand for olives in Italy is given by Qd = 10 - P. The supply for olives in Italy is given by Qs = P + 6. Assume the Italian government sets a price floor at 3 euros. How much does this price floor change the consumer surplus from the pre-price floor equilibrium euro price?

p) Lowers consumer surplus by 7.50
q) Lowers consumer surplus by 2.50
r) Raises consumer surplus by 2.50
s) There is no change in the consumer surplus
t) Raises consumer surplus by 0.50

6) The supply and demand curves for lunch boxes are given by the straight supply and demand curves in the graph below. There is a price celing at $8 in this market in effect till the end of the coming year and the government refuses to buy the surplus. Suppose that last week producers in this market discovered a production technology improvement that shifted out the supply curve to the curve labeled S’. The change in the deadweight loss due to this technology growth is:

u) $20
v) $30
w) $40
x) $50
y) $0

Problems with answers:

1) The governor of Hawaii would like to make single-family apartments more affordable and considers implementing a perfectly enforced price ceiling at $1,500. You are hired as a consultant to analyze the effects of the policy on the market. Based on the supply and demand for housing shown below, what do you conclude? Apartments

Rent
2,500

2,000

1,500
500 1,0001,500
s
d
Apartments
Rent
2,500

2,000

1,500
500 1,0001,500...
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