Question

ECON 1150 ASSIGNMENT 4 [Total Marks = 10] "Want to see the Titanic up close? That'll be $130,000.00 - and some courage" (Vancouver Sun Newspaper, Monday, January 22, 2018, P. NP3). Last week, in assignment 2, we determined that the mathematical Inverse Demand curve was: P= 216,400 - 1600 (Q.). Suppose that in-depth research by the company promoting this once-in-a-lifetime "Titanic up- close experience" found their Inverse Supply curve to be P=20,000+ 2,037.03[Q] Suppose the Society of once-in-a-lifetime Opportunities for All has successfully lobbied the government to impose a "Price Ceiling" that makes it possible for "normal citizens to see the Titanic by setting the price at $100,000.00. Using this price, describe the impact on both the Quantity Demanded, Q and the Quantity Supplied, Q, at the price ceiling price. What is the effect on the current market equilibrium of P =$130,000 and Q = 54? (4 Marks) Suppose the Society for Fair-Price Visits to the Titanic successfully lobbies the government to impose a "Price Floor" that makes a "fair" return possible for suppliers in the market by setting the allowable price at $145,000.00. Using this price, describe the impact on both the Quantity Demanded, and the Quantity Supplied, Q, at the price ceiling price. What is the effect on the current market equilibrium of P = $130,000 and Q = 54? (4 Marks) Given the results in parts i and ii above, explain carefully WHY the market would be unable to re- establish a "new" equilibrium Quantity Demanded, Q, and Quantity Supplied, Q, in the market under either of these impositions. (2 Marks)

Answer 1

16 Yok P = 216, 400 1600 dd eich P = 20,000 + 2037.03 ds are ceiling = 1. 1ooooo 130000 is brice P.F . At P = 100,000 loo, ooo -216400- 1600dd 20,000 116400 = 1600 od Od = 72.75 unite. ( Increased) 109,000 - 20000 + 2037.03de 80oo02 2037.03 Qs Qs = 39.27 units ( Decreased) The current equilibrium has changed as price has bee reduced. (i) Price floor = $145,000 At P=145000 145,000= 216400-1600 ld 1600 Qd = 71400 - Qd = 44.625 unite (Decreased) 145,000= 20,000+ 2037.03 O G = 61.36 unite ( Increased) The current equilibrium price is no longer relevant case of price floor. in (iii) Under these impositions, market would be unable to re-establish a neue equilibrium Quantity demanded and Quantity supplied because the price floors and price ceilings are binding in these cases.