Principles_OTHERsolution_ch6

# Principles_OTHERsolution_ch6 - Suggested Answers for...

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1 Suggested Answers for Mankiw, Chapter 6, “Other” Problems 1. If the price ceiling of \$40 per ticket is below the equilibrium price, then quantity demanded exceeds quantity supplied, so there will be a shortage of tickets. The policy decreases the number of people who attend classical music concerts, because the quantity supplied is lower because of the lower price. 3. a. The equilibrium rental price of a two-bedroom apartment is \$400 and the equilibrium quantity is 300 apartments. b. With a price ceiling of \$300, the new market price is \$300 because the price ceiling is binding. At that price, only 200 apartments are rented, because that is the quantity supplied. c. If there’s a price floor of \$450, the new market price is \$450 because the price floor is binding. At that price, only 275 apartments are rented, because that is the quantity demanded. 4. a. Figure 4 shows the market for gasoline without the tax. The equilibrium price is P 1 and the equilibrium quantity is Q 1 . The price paid by consumers is the same as the price received by producers. Figure 4 Figure 5 b. When the tax is imposed, it drives a wedge of \$0.50 between supply and demand, as shown in Figure 5. The price paid by consumers is P 2 , while the price received by producers is P 2 – \$0.50. The quantity of gasoline sold declines to Q 2 . 5.

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