exam 2 answer

exam 2 answer - the equilibrium price in the market is $500...

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ARE 201 Spring 2009 Exam #2 Answer Sheet MULTIPLE CHOICE (3 points each) 1. c 2. b 3. b 4. b 5. a 6. d 7. d 8. a 9. d 10. b 11. a 12. c 13. b 14. c TRUE/FALSE (2 points each) 1. T 2. F 3. F 4. F 5. T 6. T 7. T SHORT ANSWER APPLICATION/SCENARIO (12 points each) 1. ANSWER: 89 . 1 2 / ) 4000 4500 ( 4000 4500 2 / ) 8 10 ( 8 10 = + - + - The income elasticity of demand for the Shaffers is 1.89. Since the income elasticity of demand is positive, this would be interpreted as a normal good. 2. ANSWER: a. For this example, a $300 price ceiling would cause a shortage of 4,000 bicycles. A price ceiling is binding if it is set at any price below equilibrium price. Since
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Unformatted text preview: the equilibrium price in the market is $500, this would be a binding price ceiling. b. For this example, a $700 price floor would cause a surplus of 4,000 bicycles. A price floor is binding if it is set at any price above equilibrium price. Since the equilibrium price in the market is $500, this would be a binding price floor. c. More than one reason may exist for policymakers to impose a price ceiling or price floor in a market. Often this is done in an attempt to increase equity....
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exam 2 answer - the equilibrium price in the market is $500...

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