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Unformatted text preview: 107 Problems on Applying Supply and Demand to Regulated Markets. Problem 5.1. A ceiling price is a (choose from “maximum” or “minimum”) price at which a trade may legally be made. Problem 5.2. A floor price is a (choose from “maximum” or “minimum”) price at which a trade may legally be made. Problem 5.3. Before market reforms in Russia, citizens spent a lot of time lining up to buy items in stores. The prices of these items were controlled and determined by the Russian Government. (i) What does the existence of all of these lines tell you about the controlled prices of these goods compared to the prices that would have existed in the absence of price controls? Were these prices market-clearing prices, ceiling prices, or floor prices? (ii) Can you think of recent events in the US where people have lined up to buy items because of imposed price controls? Problem 5.4. From time-to-time in the US we see prices made subject to regulations that do not permit prices to rise above a governmentally specified level. Let us think through the consequence of such price controls. As an example we will use the market for gasoline. Particularly, suppose that the market demand curve and the market supply curve for gasoline are Q D = 100- 20 p thousands of gallons and Q S = 30 p thousands of gallons, where p is the price per gallon of gasoline....
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This note was uploaded on 03/01/2011 for the course ECO 182 taught by Professor Morgan during the Spring '08 term at SUNY Buffalo.
- Spring '08
- Supply And Demand