Economics 101 – Fall 2005
Wei Zhang
Problem Set 6 – ANSWER KEY
The Impact of a Price Ceiling
1)
Recall that the demand for leaf blowers in Madison is given by the equation Q
D
=90P,
while supply is given by Q
S
=2P.
a.
In equilibrium we know that the quantity demanded must equal the quantity
supplied.
Thus,
Q
D
= 90P = 2P = Q
S
90 = 3P
P* = 30 and Q* = 90 – (30) = 60 –or Q* = 2(30) = 60
b.
The city of Madison, in order to encourage a citywide cleanup, imposes a price
ceiling of $10/blower. There will be a shortage of 60 leaf blowers. It is easiest to
show this using a graph. Begin by rewriting the demand and supply equations in
slopeintercept (y=mx+b) form:
Demand:
P = 90Q
D
Supply:
P = ½ Q
S
,
Now graph these two equations:
Introducing the price ceiling of $10 can be done graphically as follows.
To find the
quantity demanded and the quantity supplied at the price of $10, just substitute P=
$10 into the demand and supply equations, to find 80 and 20, respectively. The
shortage is the difference between demand an supply, and therefore 8020 = 60.
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 Fall '07
 Hansen
 Economics, Microeconomics, Supply And Demand

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