ps4new[1] - PS#4Solutions 3. a.

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PS#4 Solutions 3. a. The equilibrium price of Frisbees is $8 and the equilibrium quantity is six million Frisbees. b. With a price floor of $10, the new market price is $10 because the price floor is binding. At that  price, only two million Frisbees are sold, because that is the quantity demanded. c. If there’s a price ceiling of $9, it has no effect, because the market equilibrium price is $8, which is  below the ceiling. So the market price is $8 and the quantity sold is six million Frisbees. 6. If the government imposes a $500 tax on luxury cars, the price paid by consumers will rise less than  $500, in general. The burden of any tax is shared by both producers and consumers the price paid  by consumers rises and the price received by producers falls, with the difference between the two  equal to the amount of the tax. The only exceptions would be if the supply curve were perfectly elastic 
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This note was uploaded on 10/11/2011 for the course EC 101 taught by Professor Idson during the Spring '08 term at BU.

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ps4new[1] - PS#4Solutions 3. a.

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