MID2 PRACTICE

# MID2 PRACTICE - Question 1 Consider the market for cheese...

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Unformatted text preview: Question 1 Consider the market for cheese. Suppose the equilibrium price of cheese is \$8 (a) Sketch the demand and supply curves for cheese. Label equilibrium price and quantity (b) The government implements a price floor of \$10. Will it be binding? (c) The government implements a price ceiling of \$10. Will it be binding? (d) Whichever policy is binding, illustrate this policy on the diagram above. Clearly label any surplus or shortage on your diagram. (e) Who benefits and who loses as a result of this policy (the binding one)? Question 2: Consider a firm in a perfectly competitive market in which the market equilibrium price is \$5 per unit. When quantity produced is zero, the firm’s profits are -5. (a) What are the fixed costs for this firm? Briefly explain how you know this. (b) When quantity produced is 4, could profits be \$16? Briefly explain. 3) Define a perfectly competitive Market 4) Describe the difference between accounting and economic profits Question 3: Consider the market for milk. We know that the demand curve has P.E.D. of -0.33. Supply has P.E.S. of 1.9. (a) Using the information above illustrate the market for milk, clearly labeling equilibrium price and quantity. (b) On the market diagram, illustrate a per unit subsidy of size sub . Clearly label the quantity bought and sold after the subsidy: sub Q , the price consumers pay after the subsidy: Sub D P , the price producers receive after the subsidy: sub S P . (c) Label distinct areas on your diagram above and then fill out the table below: CS PS Gov’t TS Before Subsidy: After Subsidy: (d) What is the deadweight loss of the subsidy? (Either clearly draw/label it on diagram, or write down the labeled areas that describe it.) e) Who gains most from the subsidy, producers of consumers? Question 4:...
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## This note was uploaded on 10/05/2011 for the course ECON 1101 taught by Professor Someguy during the Spring '07 term at Minnesota.

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MID2 PRACTICE - Question 1 Consider the market for cheese...

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