Question

1) In some markets the government has interfered with the rationing function of the market by establishing price ceiling and price floors. Has the establishment of price ceiling and price floors achieved the desired outcomes. Give examples.

W4

2) What are the major determinants of price elasticity of demand? Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or inelastic: (a) bottled water; (b) toothpaste; (c) Crest toothpaste; (d) ketchup; (e) diamond bracelets; (f) Microsoft’s Windows operating system. Why is it important for a producer to know the elasticity of the demand curve he or she faces?