Submitted by: Submitted by levy85
Views: 243
Words: 551
Pages: 3
Category: Business and Industry
Date Submitted: 01/26/2014 09:54 PM
(1750,$125)
After the tax has been imposed, the seller will increase the price of the good for buyers to equal theirs plus the cost of the tax. According to the laws of supply and demand this will initially cause a right shift to the curve, but only momentarily until the demand decreases and the sellers resort to decreasing the price with the same tax cost in effect. This is neither beneficial for the buyer or seller as both will suffer loss. This will cause a left shift in the curve. Â
Disregard the new tax in part three. Now assume that the government imposes a price ceiling of $100 in this market, as a result of protests of price gouging by the sellers. What would happen to the price and quantity in this market? The sellers would have no incentive to produce the good. The buyers, pleased with the new fixed price, buy out the current inventory resulting in a shortage. This would happen only if the new price was set below the equilibrium, which in this case, it is. Lets say that the price ceiling was set above the equilibrium price $125, then there would most likely not be a shortage, because the market would have incentive to make profit thereby steadily increasing production.
Worth Publishers. Retrieved November 15, 2013, from http://www.worthpublishers.com/Catalog/uploadedFiles/Content/Worth/Product/About/Look_Inside/Krugman,_Micro_in_Mods_2e/KrugMicro2eMods_Mod08.pdf
Disregard the events of part four. Assume that the manufacturers of this product lobby the government’s lawmakers, in terms of this product being an essential for college students but they are considering halting production due to the lack of profits. The lawmakers agree and now set a price floor at $150. What would happen in this market? Unlike the price ceiling, a floor price would result in a surplus. Sellers will produce what they anticipate buyers will demand. When that demand is lower than expected due to the increased price, then sellers are left with a surplus. Like the...