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Problems - Assignment Example

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When the floor is set at Pf, a price greater than P1, Q2 becomes the quantity demanded. However the quantity supplied is Q3. Thus the surplus of cheese is given by Q3-Q2.
b) In cases where demand…
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Download file to see previous pages Since the producers are producing Q3, their revenue will rise substantially since all their produce is sold off. On the other hand, consumers would only consume Q2; implying that they are in the same position as before. The loss experienced by taxpayers result from the fact that they are the one financing the purchase of the surplus cheese through payment of higher taxes (David, 2003).
b) When the price floor is at $10, new market price will be 10 dollars. This is because the price floor is binding. Taking into consideration that the quantity demanded of Frisbees are only 2 million at a price floor of 10 dollars, 2 million is the quantity demanded.
The imposition of tax drives a wedge of 2 dollars between the supply and demand. Consumers pay price P2 whereas producers pay P-$2. Due to increase in price, the quantity of beer sold decreases to Q2 (David, 2003).
b) The demand curve for typewriters, substitute goods, will shift to the left as a result of decrease in the computer price (David, 2003). Thus increase in the supply of computers will decrease the demand of typewriters. Hence typewriters producers should be sad. Both quantity supplied and price will decrease.
d) Yes, the analysis do explain why software producer Bill Gates is one of the richest men. With advancement in technology, cheaper computers are made making people want more user-friendly software and operating systems. Thus Bill Gates who produce most popular operating systems and software make a lot of money from ...Download file to see next pagesRead More
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