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Price Controls 1: Lovers of classical music in Austria persuade their Parliament to impose a price ceiling of €40 per ticket for music concerts. Does this policy get more or fewer people to attend classical music concerts?2: The government has decided that the free market price of cheese is too low. Suppose the government imposes a binding price floor in the cheese market. Use a demand and supply diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a shortage or surplus of cheese?Farmers complain that the price floor has reduced their total revenue. Is this possible? ExplainIn response to farmers’ complaints, the government agrees to purchase all of the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?3: A recent study found that the demand and supply schedules for Frisbees are as follows:Price QDQS€111,000,00015,000,000€102,000,00012,000,000 €94,000,000 9,000,000 €86,000,000 6,000,000 €78,000,000 3,000,000 €610,000,000 1,000,000What is the equilibrium price and quantity of FrisbeesFrisbee manufacturers persuade the government that Frisbee production improves scientists’ understanding of aerodynamics and thus is important for national security. A concerned parliament votes to impose a price floor €2 above the equilibrium price. What is the new market price? How many Frisbees are sold? Graph this informationIrate college students march on Parliament and demand a reduction in the price of Frisbees. An even more concerned Parliament votes to repeal the price floor and impose a price ceiling €1 below the former price floor. What is the new market price? How many Frisbees are sold? Graph this information.4: The table below shows the demand and supply schedules for rental apartments in a Chicago suburb of the United States. Price ($)Quantity demanded (apartments)Quantity supplied (apartments)6004000100080030002000100020003000120010004000(a) What is the rent in this suburb and how many apartments are rented?(b) If the city of Chicago imposes a rent ceiling of $900 a month, what is the rent in this suburb and how many apartments are rented?(c) If the city of Chicago imposes a rent ceiling of $600 a month, what is the rent in this suburb and how many apartments are rented?(d) With a strictly enforced $600 rent ceiling, is the housing market efficient? Why or why not?(e) If the city strictly enforces the rent ceiling, is the housing market fair? Explain why or why not.(f) If a parallel market develops, how high could the parallel market rent be? Explain your answer. 5: The table below shows the demand and supply schedules for tomato pickers in southern California. Wage rate ($ per hour)Quantity demanded (number of pickers)Quantity supplied (number of pickers)450003000640004000830005000(a) What is the equilibrium wage rate of tomato pickers and what is the equilibrium quantity of tomato pickers employed?(b) Is the market for tomato pickers efficient? (c) If California introduces a minimum wage for tomato pickers of $4 an hour, how many tomato pickers are employed and how many are unemployed?(d) If California introduces a minimum wage for tomato pickers of $8 an hour, how many tomato pickers are employed and how many are unemployed?(e) Is the minimum wage of $8 an hour efficient? Is it fair?(f) Who gains and who loses from the minimum wage of $8 an hour?6: During the 1996 Olympic Games in Atlanta, Georgia, USA, many residents of left the city and rented out their homes. Despite the increase in the quantity of housing available, rents soared. If the city authorities of Atlanta had imposed a rent ceiling at the time of the 1996 Olympic Games, describe how the housing market would have functioned. 7: Concerned about the political fallout from rising gas prices, the government decides to impose a ceiling on the price of petrol of $1.00 a litre. Explain how the market for petrol would react to this price ceiling if:(a) The oil-producing nations increased production and drove the equilibrium price of petrol to 90 cents a litre.(b) A global shortage of oil sent the equilibrium price of petrol to $2.00 a litre. 7: Bakers earn $10 an hour, petrol pump attendants earn $4 an hour, and copy shop workers earn $5 an hour. If the government introduces a minimum wage of $5 an hour, explain how the markets for bakers, petrol pump attendants and copy shop workers will respond initially to the minimum wage. 8: The equilibrium retail price of beef falls to $2 a kilo, a price at which cattle ranchers cannot survive. To help the struggling ranchers, the government declares that it is illegal to buy beef for less than $5 a kilo. The government also appoints a large number of observers to keep a close watch on the beef market and ensure that the law is observed to the letter. Parallel market traders are effectively eliminated. Describe the situation in the beef market, and explain why the cattle ranchers want the government to abandon the price floor. ................
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