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Unformatted text preview: ECON-314-03/04, 9/28/10 ANSWERS TO ASSIGNMENT 2 1. If the U.S. imposes a quota on the number of foreign-trained physicians permitted to practice in U.S., there are two possible consequences on the market equilibrium. The first case is when the market demand for doctors' services is very high (as shown by D h in the graph below), the quota system is binding. As a consequence, the market equilibrium moves from e2 to e3. Thus, the equilibrium quantity of doctors' services in U.S. decreases from Q2 to Q3, while the equilibrium price for doctors' services in U.S. increases from P2 to P3. This means that American-trained doctors will earn more and patients in U.S. need to pay more for doctors' services while quantity of services provided is less than before. The second case is when the market demand for doctors' services in U.S. is low (as shown by D l in the graph below), which is actually not realistic for the current U.S. healthcare market, the quota system is not binding. As a consequence, the market equilibrium is the same with and without the quota system. 1 ECON-314-03/04, 9/28/10 2. This is an example of price ceiling. Under the law of rent control in Berkeley, landlords were not allowed to charge a price higher than the ceiling price, p . Then, at this arbitrary ceiling price, quantity of housing (i.e. apartments) demanded (Q d ) was more than the quantity of housing supplied (Q s ), which resulted in an excess demand and the market was not in equilibrium at the...
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- Spring '10
- Market Equilibrium