Question

shortage, Surplus and Gov’t. Price Controls

SP W $70T K Y $40 $20 B Z 0 50 75 100 125 160 175 Q
    

Assume: Sellers put the Price for the angelfish, at $100.

1. What is the “effective” Quantity?
2. What is happening, at this Price?
3. How much of one?
4. Will the Price tend to rise or fall?
5. If this price is imposed by the government (legal force) - what is this type of Price Control called?

At the off-equilibrium Price of $100,

6. What Area shows Total Revenue (Total Expenditures)?
7. What Area shows Total Cost (to Seller)?
8. What Area shows Total Maximum Value (to Buyer)?
9. What Area shows Profit (to Seller)?
10. What Area shows Consumer Surplus (to Buyer)?
11. What Area shows Social Surplus (total Trade Gains)?
12. What Area shows the Social Waste (lost trade-gains) due to the Price Control imposed by legal force on these traders?

Now, assume: Sellers put the Price for the angelfish at $60.

13. What is the “effective” Quantity?
14. What is happening, at this Price?
15. How much of one?
16. Will this Price tend to rise or fall?
17. If imposed by government - what is this Price Control called?

At the off-equilibrium Price of $60,

18. What Area shows Total Revenue (Total Expenditures)?
19. What Area shows Total Cost (to Seller)?
20. What Area shows Total Maximum Value (to Buyer)?
21. What Area shows Profit (to Seller)?
22. What Area shows Consumer Surplus (to Buyer)?
23. What Area shows Social Surplus (total Trade Gains)?
24. What Area shows the Social Waste (lost trade-gains) due to the Price Control imposed by legal force on these traders?

25. At the Price of $100:  draw & label  the “sale price” line, then shade in the Loss to Sellers for their initial pricing mistake --- SHOW the ANSWER on the Graph

26. At the Price ‘Floor’ you identified above (in the responses): What Area (use Letters on Graph above) shows the Subsidy or “corporate welfare” (spending of tax dollars by federal program to buy up the unwanted surplus units)?

Answer 1

1.

A

Effective quantity is 50, because it is the quantity being demanded and consumed at this price.

B.

There is a surplus at this price. Supply is 160 and demand is 50 only.

C.

Size of surplus = 160-50 = 110

D.

Price will fall, because surplus will put downward pressure upon the price and push it towards the equilibrium.

E.

It is price ceiling type of control that is non-binding in nature.

2.

A. VNBZ is the area that represents total revenue.

B. TYZB is the total cost

C. Total maximum value is WVN.

D. VNYT is the area of net profit

E.WNYT is the total social surplus.

F. NGY is the deadweight loss.

Pl. repost other unanswered questions for their proper answers!