Exercises on lecture 1.docx - 1 b 2 a b 3 Consider the...

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1. Consider the market for apples in a small island nation. The domestic demand curve is P = 100 – (1/10) Qd and the domestic supply curve is P = 10 + (1/5) Qs. a. What is the market equilibrium price and quantity? b. If the government, hoping to help the poor, imposes a price ceiling of $50, what will be the shortage of apples in the market? c. What price floor would yield a surplus of 150 apples? 2. The weekly demand and supply for corn is given by the following equations where P is the price (in cents) per ear of corn, and Q is the number of ears of corn in thousands. Demand: Q = 140-10P and Supply: Q = -10 + 5P a. Since corn can be used for ethanol production, the government wishes to stimulate corn production. Thus, it sets a price floor of 12 cents per ear of corn. How will this regulation affect the quantity of corn traded? b. Suppose instead, that the government wishes to encourage corn consumption by making it more affordable for consumers.

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