Question

A.2 Price Restrictions Question 4: Suppose demand and supply for a commodity are Q2P 11 and Q 2P 8 a. For that commodity, compute equilibrium price, b. Suppose that commodity with Q211 and Q 2P 8 were c. Now instead of labor, suppose that commodity with Qd-2P11 quantity, consumer surplus, and producer surplus. unskilled labor and a minimum wage of $5 is imposed. Compute the effect of that minimum wage on the unskilled labor. and Q 2P 8 were medical care and a maximum price of $4 is imposed to make medical care more affordable. Compute the effect of that maximum price on those seeking medical care. Explain your answers. Answer to Question:

Answer 1

a. Equilibrium price
Qd=Qs
-2P+11=2P-8
19=4P
P = 4.75
Qd= -2P+11=-2*4.75+11 = 1.5
CS= 0.5*1.5*(5.5-4.75)= 0.5625
PS=0.5*1.5*(4.75-4)= 0.5625

P	Qd	Qs
0.00	11.00	-8.00
0.25	10.50	-7.50
0.50	10.00	-7.00
0.75	9.50	-6.50
1.00	9.00	-6.00
1.25	8.50	-5.50
1.50	8.00	-5.00
1.75	7.50	-4.50
2.00	7.00	-4.00
2.25	6.50	-3.50
2.50	6.00	-3.00
2.75	5.50	-2.50
3.00	5.00	-2.00
3.25	4.50	-1.50
3.50	4.00	-1.00
3.75	3.50	-0.50
4.00	3.00	0.00
4.25	2.50	0.50
4.50	2.00	1.00
4.75	1.50	1.50
5.00	1.00	2.00
5.25	0.50	2.50
5.50	0.00	3.00

b. With a minimum wage of $5, there would be excess supply than demand leading to surplus labor and causing unemployment.

6.06Unemployment 5.00 4.50 4.00 3.00 2.00 1.50 0.50 0.00ーーー ㄧ ㄧㄒㄧ- ㄒ ㄧㄧ ㄧㄒ 9 8 7 -6 -5 -4 -3 2 -1 0 1 23 4 5 6 7 8 9 10 11 12 No of labors

c. The effect of maximum price of $4 is zero supply, short supply but the excess demand of 3 quantity, consumer surplus is 0.5*1.5*3= 2.25, producer surplus = 0