Eco1104-Midterm-Fall03

Eco1104-Midterm-Fall03 - ECO1104A Fall 2003 Evaluation I...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ECO1104A David Gray Fall 2003 Evaluation I This is a closed book evaluation which is being given under the academic code of conduct of the University. Turn off all cellular telephones. You may not consult with any written documents whatsoever, including other students’ papers, and no conversation with other students is permitted during the course of the examination. The use of palm pilots and programmable calculators is forbidden. PART I - Short Answer Questions (30 points) Please answer by writing full sentences; point form is not acceptable. I went over most of this material very thoroughly in class, so all that you have to do is recall what I said. 1a) Explain in words why governments regulate the prices and quantities of certain commodities, particularly in the agricultural sector. In other words, what is their motivation? In this question, I do not want you to discuss what the government does, but rather why they do it. (2 points) IT IS PRIMARILY TO INCREASE OR TO PROTECT THE INCOMES OF PRODUCERS IN THE CASE OF PRICE FLOORS, AND TO RENDER THE COMMODITY MORE AFFORDABLE TO CONSUMERS IN THE CASE OF PRICE CEILINGS. Note: This is a point that I made several times in class, and it also appears in the slides. 1b) Explain in words why most economists tend to be very critical of interventions such as price floors, price ceilings, and quotas. Do not give any graph. What I am looking for is an explanation of the economic behaviour the follows the imposition of these price and/or quantity regulations, and a description of the economic outcome. (3 points) REGULATED PRICES DISTORT THE BEHAVIOUR OF BOTH DEMANDERS AND SUPPLIERS. BOTH SIDES OF THE MARKET REACT TO THE CHANGES IN THE TRANSACTIONS PRICE BY CHANGING THE QUANTITY DEMANDED AND THE QUANTITY SUPPLIED, AND THESE REACTIONS ALWAYS WORK TO CREATE A MARKET DISEQUILIBRIUM THAT UNDERMINES THE TARGETTED PRICE. EITHER A SURPLUS OR A SHORTAGE EMERGES. Note: This is a point that I made several times in class, and it also appears in the slides.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1c) What type of policy instrument do economists recommend if the policy objective is to make a certain group of consumers (such as tenants) or producers (such as farmers) better off? (2 points) A PAYMENT IN THE FORM OF A LUMP-SUM (AN ALLOWANCE) WITH NO STRINGS ATTACHED. IN OTHER WORDS, THIS PAYMENT IS NOT TIED AT ALL TO THE AMOUNT THAT THE DEMNADER BUYS OR THE AMOUNT THAT THE SUPPLIER SELLS. FOR TENANTS, IT WOULD TAKE THE FORM OF A HOUSING ALLOWANCE THAT THE RECIPIENT CAN SPEND AS HE/SHE SEES FIT. FOR AN AGRICULTURAL PRODUCER, IT WOULD TAKE THE FORM OF AN INCOME SUPPLEMENT OF A FIXED AMOUNT REGARDLESS OF HOW MUCH IS PRODUCED. Note: This is a point that I made several times in class, and it also appears in the slides. 2.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/15/2008 for the course ECO 1104 taught by Professor Crabbe during the Spring '08 term at University of Ottawa.

Page1 / 7

Eco1104-Midterm-Fall03 - ECO1104A Fall 2003 Evaluation I...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online