David sells Sno-cones and uses the money earned to buy pizzas. Last year Sno-cones sold for $1 each, and pizzas were $10 each. This year David finds that he can only charge $0.50 per Sno-cone, but that the price of a pizza has climbed to $12. a . If
David asks the government to intervene to maintain his purchasing power, what price would the government have to set for Sno-cones? Explain. b. How would the new, government-imposed Sno-cone price affect the Sno-cone market?
a . To maintain 100 percent parity, a price of $1.20 should be chosen. Why? Last year it took 10 Sno-
cones to buy one pizza . If pizza now costs $12 and we want to buy it with 10 Sno-cones, then each
Sno-cone should be priced at $1.20.
b. At a price of $1.20, an excess supply occurs.
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