# Homework 2 Answers - The Colorado College Department of...

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1 The Colorado College Department of Economics and Business Block 5 Econ 151 Homework #2 answers 1. (a) Equilibrium price = \$500 ; equilibrium quantity = 50 . (b) A price ceiling of \$700 is above the equilibrium price of \$400. So it will have no effect and will not be binding. (c) With a price ceiling of \$400, the quantity demanded rises to 55 units and quantity supplied falls to 40 units. There is a shortage of 15 units. (d) No. It makes those bicycle buyers better-off that actually get a bicycle. However, some buyers are unable to get a bike, must wait in line, pay a bribe, or accept a lower quality bicycle. (e) With a price floor of \$700, the quantity supplied rises to 70 units, the quantity demanded falls to 40 units, and there is a surplus of 30 units. 2. (a) (i) A per unit tariff is imposed as a fixed amount on the price of the good while an advalorem tariff is imposed as a certain percentage on the price of the good. (ii) The imposition of a tariff on a country’s imports is shown below in the following supply and demand diagrams: \$500 50 D S Q P \$400 \$700 55 40 70 30 P E Q S 1 Q D 1 P a b c Q S 0 Q D 0 d P W P D =P W +t Q

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Homework 2 Answers - The Colorado College Department of...

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