Question

1. The current market for junked cars is $100. A junkyard owner will pay you that amount for your wreck to haul it away. Suppose the supply of junk cars dramatically increases. Show how there could be a surplus of junk cars at a zero price. Explain how this could result in car owners having to pay junk yard owners to row their car away. How might the government have to create new laws or thought processes to remedy the problem and what might be there impact. Give detail in your answer.

Answer 1

Since the supply of junked cars dramatically increases people will be willing to sell it even at a Zero price since there is a very high supply

As the supply of junked cars increases there is enough availability of junked cars for junkyard owner therefore he can demand fcharges from the owner of the car to row their car away

The government can intervene in the situation a can adopt any of the following ways

A)They can fix a standard rate for the junked car which the junkyard owner has to pay to the car owner

B) The government can take over junked cars at a fixed rate which will force the private junkyard owners also to buy the cars at a fixed rate thereby protecting the interest of the citizens.