Question

I-2. A recent study found that the demand and supply schedules for Frisbees are as showa in the table below: Demand and Supply Schedule 2.1 What are the equilibrium price and quantity of Frisbees? quantity suppled quantity demabded Equilibrium Prce Price Quantity Demanded Quantity Supplied S11 $10 S9 S8 S7 S6 dollans 1 million 15 millions ilibrium Quantity: million 2.2 Frisbee manufactures persuade the government that Frisbe production improves scientists' understanding of aerodynamics and thus is important for national security. A conicerned Congress votes to impose a price floor at S10. 10 2.2.1 What is the new market price? 2.2.2 How many Frisbees are able to be exchanged in the market? 2.2.3 What force does exist under the stated price floor, shortage or surplus? dollars Note that with price loor million Note: Goods can not be exchanged more than either the quantity supplied or the quantity demanded at a given price. 2.3 Irate college students match on Washington and demand a reductioón in the price of Frisbees. An even more concerned Congress votes to repeal the price floor and instead impose a price ceiling at S9 2.3.1 What is the new market price? dollars Note that with price deiling S9, price c And thiak anather thing Is the prce celling bound at this me? Ifoot, thon markt prce-equilibrnum peice can rot go above S9 at any instance 2.3.2 How many Frisbees are exchanged? million

Answer 1

2.1

Equilibrium is attained at the equality of the quantity demanded and the quantity supplied.

Both quantity demanded and quantity supplied of frisbees are equal to the price of $8 per frisbee.

So,

Equilibrium Price = $8

Equilibrium quantity = 6 million

2.2

When price floor is imposed at a price greater than the equilibrium price then it is binding.

The equilibrium price is $8 per frisbee.

The price floor is $10 per frisbee.

Since, price floor is greater than the equilibrium price, it would be binding.

So,

The new market price is $10.

At $10, quantity demanded is 2 million and the quantity supplied is 12 million.

When, at a given price, quantity demanded and quantity supplied are not equal then lower of the two is the quantity exchanged.

So,

The frisbees to be exchanged in the market is 2 million.

There would be surplus under the stated price floor.

2.3

Price ceiling can only be binding if it is fixed at a price less than the equilibrium price.

Price ceiling is fixed at $9.

The equilibrium price is $8.

Since, price ceiling is greater than the equilibrium price, it will not be binding.

So,

The new market price would be $8.

The frisbees to be exchanged in the market would be 6 million.