Question

3. Problems and Applications Q3 A recent study found that the demand and supply schedules for flying disks are as follows: Price Quantity Demanded Quantity Supplied (Dollars per disk) (Millions of disks) (Millions of disks) 11 1 15 10 2 12 9 4 9 8 6 6 7 8 3 6 10 1 Complete the first row of the following table by indicating the equilibrium price and the equilibrium quantity of flying disks in the absence of any price controls. Scenario Market Price Market Quantity Binding or Not Binding (Dollars per disk) (Millions of disks) No Price Control N/A Price Floor    Price Ceiling    Flying disk manufacturers persuade the government that flying disk production improves scientists' understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a price floor $2 above the equilibrium price. Complete the second row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price floor $2 above the equilibrium price. Then indicate whether the price floor is binding or not binding. Irate college students march on Washington and demand a reduction in the price of flying disks. An even more concerned Congress votes to repeal the price floor and impose a price ceiling $3 below the former price floor. Complete the final row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price ceiling $3 below the former price floor. Then indicate whether the price ceiling is binding or not binding.

Answer 1

Fill up the table as follows Market Quantity Binding or Not Binding Scenario Market price (Dollars per disk) Millions of disks) 6 No price control Price Floor Price Ceiling 10 7 N/A Bindin Binding