Question

Careful market research has determined the following weekly supply and demand schedules for ballpoint pens in Cambridge, MA:
Qd= 12 –p Qs = 2P
P: Dollars per pen
Q: Thousands of pens per week
1.1 Find the equilibrium price and quantity in the Cambridge ballpoint pen market.
NOTE TO STUDENTS: On paper, draw the demand and supply curves and show the equilibrium. Label your graph carefully (remember quantity here is measured in thousands of pens per week).
The equilibrium price in the Cambridge ballpoint pen market is _______ per pen.
1.2 The equilibrium quantity in the Cambridge ballpoint pen market is _______ pens.
1.3 The Cambridge City Council hears testimony from ballpoint pen manufacturers that they cannot seem to turn a reasonable profit. They convince the City Council to implement a price floor of $5 per pen. The City Council also agrees to buy any surplus pens at that floor price.
On your diagram, show the effects of this price floor. How many pens will consumers buy now? How many pens will the Cambridge City Council buy?
As a result of the price floor, consumers now buy _______ pens.
1.4 As a result of the price floor, the CCC buys_______ pens.
1.5 The cost of this policy to the CCC is _________.
1.6 How have consumer expenditures changed from the original equilibrium to the price floor case?
Hint: Give actual numbers. So if the price to consumers were $10 per pen and consumers purchased 2000 pens per week, consumer expenditures would be $20,000 per week.
In the original equilibrium (without the price floor policy in place) consumer expenditures on pens were _____.
1.7 With the price floor policy in place, consumer expenditures are _______.
1.8 Consumer expenditures have ________ as a result of the price floor policy because
the % ________ in price is ______ than the % _________ in quantity demanded.
A. increased; increase; smaller; increase
B. decreased; decrease; larger; increase
C. decreased; increase; larger; increase
D. increased; increase; larger;decrease
1.9 A member of the city Council suggests replacing the price floor policy with a per unit subsidy to consumers that would make ballpoint pen manufacturers as happy as they were with the price floor policy.
NOTE TO STUDENTS: please add the subsidy equilibrium to the graph that you already created and that you will hand in. Show the price to consumers, the price to producers, and the quantity transacted with the subsidy in place.
The per-unit subsidy that would accomplish this goal is: ______ 1.10 Which do consumers prefer?
A. The subsidy because they buy more pens, at a lower price than the price floor
B. The price floor because those who value the pends more get to buy them
C. They are indifferent
1.11 Which do producers prefer?
A. The subsidy
B. Thepricefloor
C. They are indifferent
1.12 The subsidy costs the CCC ______
1.13 Therefore the CCC prefers:
A. The subsidy
B. Thepricefloor
C. Either one, they are indifferent

Answer 1

Answer:

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