Chap06 - 6 1 2 SUPPLY,DEMAND,AND GOVERNMENTPOLICIES...

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Problems and Applications 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. 2. a. The imposition of a binding price floor in the cheese market is shown in Figure 3. In the  absence of the price floor, the price would be  P 1  and the quantity would be  Q 1 . With the  floor set at  P f , which is greater than  P 1 , the quantity demanded is  Q 2 , while quantity  supplied is  Q 3 , so there is a surplus of cheese in the amount  Q 3  –  Q 2 . b. The farmers’ complaint that their total revenue has declined is correct if demand is  elastic. With elastic demand, the percentage decline in quantity would exceed the  percentage rise in price, so total revenue would decline. c. If the government purchases all the surplus cheese at the price floor, producers benefit  and taxpayers lose. Producers would produce quantity  Q 3  of cheese, and their total  revenue would increase substantially. However, consumers would buy only quantity
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Chap06 - 6 1 2 SUPPLY,DEMAND,AND GOVERNMENTPOLICIES...

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