Microeconomics

ECON 220 MICROECONOMICS

Ch. 6 – Supply, Demand, and Government Policies

TEAM ASSIGNMENTS

PROBLEMS AND APPLICATIONS pp. 132 – 133,  #s 3, 7, 8, 10, and 14

3. A recent study found that the demand and supply schedules foe Frisbees are as follows:

Price perFrisbee |  QuantityDemanded million | QuantitySupplied million |

    $11 |         1 |      15 |

      10 |         2 |      12 |

        9 |         4 |       9 |

        8 |         6 |       6 |

        7 |         8 |       3 |

        6 |       10 |       1 |

a. What are the equilibrium price and quantity of Frisbees?

The equilibrium price of the Frisbees is $8.00 and the quantity is 6.

b.      Frisbee manufacturers persuade the government that Frisbee production improves scientist’ understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a floor $2 above the equilibrium price.

i.                    What is the new market price?

The new market price will be $10.00

ii.                  How many Frisbees are sold?

The amount of the Frisbee’s supplied was 12 million but the demand was 2 million which resulted in a surplus.

b. Irate college students march on Washington and demand a reduction in the price of Frisbees. An even more concerned Congress votes to repeal the floor and impose a price ceiling below the former price floor. How many Frisbees were sold?

The new price would be $9.00 so the demand would be 4 million. 

6.      Congress and the President decide that the United States should reduce air pollution by reducing the use of gasoline. They impose a $0.50 tax for each gallon of gasoline sold.

a.      Should they impose this tax on producers or consumers? Explain using a supply and demand diagram.

The outcome will be the same if the taxes are imposed on either the producer or consumer. Since the price of a good or service is important to the consumer then I would impose the tax with the producer. This...