Question

Problem Set #1 - Micro Online - Dunbar, p. 24 2.(3 points) Below are the market demand and supply schedules for FitBit (fitness tracking) devices. Price per FitBit (S) Quantity Demanded Quantity Supplied (100) (100) $190 SI 804 22 $170 8 20 $160 12 18 $150 16 16 $140 $130 24 12 $120 28 10 SI10 8 $100 36 6 20 14 a) On your own piece of paper (not to be submitted), plot and carefully label the FitBit demand and supply curves. Price per FitBi t(s) Quantity of FitBits (100) b) The market equilibrium (market clearing) price is $ per FitBit, and the market equilibrium quantity is hundred devices. c) At a price of $120 per FitBit, there would exist a (surplus/shortage) of hundred devices. If the market were allowed to freely operate, this problem would be eliminated by ( a decrease / an increase) in the market price of the devices. d) Alternatively, suppose the government decides to intervene in this market. In particular, the government imposes a price floor of $170 per FitBit. In this situation, the quantity demanded would be hundred devices, and the quantity supplied would be hundred devices. Under this price floor regime there would be a (surplus / shortage) of hundred devices in this market. e) Going back to the initial equilibrium in part b), suppose the government decides to impose a price ceiling of $130 per device. Why would shadow/black markets" develop for authentic FitBits in this situation? (NEXT PAGE)

Answer 1

OD 190 * Supply 180 + 140 130 120 110 Demand 100 Quantity 6) Market Market Equilibrium Price = $ 150 Equilibrium Quantity = [16] c) At price $120 of (18 hundred be eliminated by there would exist I shortage devices. This problem would an increase in market prices.

d) At price floor of $170 would be 18 hundred Supplied would be (20 there would be surplus qua quantity demanded devices and quantity hundred devices. of 112 hundred devices. e) If govt. Imposes price ceiling of $130. then there will be demand of 24 hundred devices and Supply will be only 12 hundred devices It means 12 hundred devices Shortage is in market. People are demanding more at 130 price than the company could supply: - Price can not be more than $130 in market because of price ceiling. Now sellers will sell their devices on higher price but only in black market because in white market price for could not be more than $ 130. - So. Due to shortage or quantity supplied than demanded & due to price ceiling will create black market.
#Please rate positively...thank you