handout4 - Economics 101 Introductory Microeconomics Fall 2010 Handout#4 Price Control A price ceiling is a maximum legal price which sellers can charge

handout4 - Economics 101 Introductory Microeconomics Fall...

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Economics 101: Introductory Microeconomics Fall 2010 Handout #4 Price Control For Problem1: Price CeilingDemand for leaf blowers in Madison is given by the equation 90;DQP=-supply is given by 2 .SQPa) What is the equilibrium price and quantity? b) In order to encourage a citywide cleanup, the city of Madison imposes a price ceiling of $10/blower. Does this cause a shortage or surplus? Of what size? = Problem2:Price SupportConsider the potato market. The demand for potatoes (in pounds) is given by 302DPQ=-and supply of potatoes is given by 102.sPQ=+Suppose that the government implements a price support program with the price floor set at $24.a. Is the market price above or below the government’s guarantee price?b. How many pounds of potatoes will be supplied given the price support?c. What is consumer demand for potatoes given the price support?d. Calculate the excess supply given the price support.e. Calculate the direct cost of the support program, assuming that there is no storage cost. f. In the graphical model of the potato market, shade the area that corresponds to the government’s cost.g. If the total cost of the program is $104, what is the storage cost per unit?

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