Suppose in a certain city the demand for low-cost housing can be characterized by the equation P = 500 - 2Q, where Q is housing measured in square feet. Further, suppose that supply is characterized by the equation: P = 25 + 3Q. Suppose that the government feels that the grant is not enough and, in addition, imposes a price ceiling of $270. What will happen to consumer surplus? What are the drawbacks?
What will be an ideal response?
Under the price ceiling scheme, new P* = 270 and therefore the Q* = 90 consumer surplus is
now found by (1/2)(90)(180) = 8,100. The drawback is that there is a shortage now, as Q*
supplied is only 90 instead of 100.
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The aggregate production function used in the Solow model expresses GDP as a function of:
A) level of technology and total efficiency units of labor only. B) physical capital and level of technology. C) physical capital and total efficiency units of labor only. D) physical capital, level of technology, and total efficiency units of labor.
Assume that the Fed performs a foreign exchange intervention in which it does nothing except buy German government bonds. One result of this will be that:
A. both the dollar and the euro depreciate. B. the dollar appreciates and the euro depreciates. C. the euro depreciates. D. the dollar depreciates.
Suppose Robin's Clock Works produces in a perfectly competitive market. Suppose the average total cost of clocks is $95, the average variable cost of clocks is $90, and the price of clocks is $85. If the firm is producing the level of output where marginal cost equals price, then in the short run the firm:
A. should shut down. B. should continue to produce since total revenue exceeds total variable cost. C. is earning a positive economic profit. D. can increase profit by increasing output.
A typical American family sends about _____ percent of its budget on services.
A. 20 B. 32 C. 66 D. 70