Chapter 2: Q8 (page 78)
Does a price ceiling change the equilibrium price?
no change in equilibrium price. the eqilibrium shifts to right due to change in demand.
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The rent control agency of New York City has found that aggregate demand is QD = 160 - 8P. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured in hundreds of dollars. The agency also noted that the increase in Q at lower P results from more three-person families coming into the city from Long Island and demanding apartments. The city’s board of realtors acknowledges that this is a good demand estimate and has shown that supply is QS = 70 + 7P.
If both the agency and the board are right about demand and supply, what is the free-market price? What is the change in city population if the agency sets a maximum average monthly rent of \(300 and all those who cannot find an apartment leave the city?
Suppose the agency bows to the wishes of the board and sets a rental of \)900 per month on all apartments to allow landlords a “fair” rate of return. If 50 percent of any long-run increases in apartment offerings comes from new construction, how many apartments are constructed?
Refer to Example 2.5 (page 59) on the market for wheat. In 1998, the total demand for U.S. wheat was Q = 3244 - 283P and the domestic supply was QS = 1944 + 207P. At the end of 1998, both Brazil and Indonesia opened their wheat markets to U.Sfarmers. Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free-market price of wheat and what quantity will be produced and sold by U.S. farmers?
Let’s think about the market for air travel. From August 2014 to January 2015, the price of jet fuel increased
roughly 47%. Using the four-step analysis, how do you think this fuel price increase affected the equilibrium price
and quantity of air travel?
Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:
PRICE (DOLLARS) | DEMAND (MILLIONS) | SUPPLY (MILLIONS) |
| 60 | 22 | 14 |
| 80 | 20 | 16 |
| 100 | 18 | 18 |
| 120 | 16 | 20 |
a. Calculate the price elasticity of demand when the price is \(80 and when the price is \)100.
b. Calculate the price elasticity of supply when the price is \(80 and when the price is \)100.
c. What are the equilibrium price and quantity?
d. Suppose the government sets a price ceiling of $80. Will there be a shortage, and if so, how large will it be?
Refer to Example 2.10 (page 81), which analyzes the effects of price controls on natural gas.
Using the data in the example, show that the following supply and demand curves describe the market for natural gas in 2005–2007:
Supply: Q = 15.90 + 0.72PG+ 0.05PO
Demand: Q = 0.02 - 1.8PG+ 0.69PO
Also, verify that if the price of oil is \(50, these curves imply a free-market price of \)6.40 for natural gas.
Suppose the regulated price of gas was \(4.50 per thousand cubic feet instead of \)3.00. How much excess demand would there have been?
Suppose that the market for natural gas remained unregulated. If the price of oil had increased from \(50 to \)100, what would have happened to the free market price of natural gas?
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