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Chapter 3: Q 30. (page 78)
How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied?
A price floor is a legal minimum price below which a company will try to raise prices.
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Table 19. 5 illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:
a. The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price.
b. A new study says that eating cheese is good for your health, so that demand increases by 20% at every price.
Agricultural price supports result in governments holding large inventories of agricultural products. Why do you think the government cannot simply give the products away to poor people?
Use the four-step process to analyze the impact of the advent of the iPod (or other portable digital music players) on the equilibrium price and quantity of the Sony Walkman (or other portable audio cassette players).
What is the difference between the supply and the quantity supplied of a product, say milk? Explain in words and show the difference on a graph with the
supply curve for milk.
Why would a free market never operate at a quantity greater than the equilibrium quantity? Hint: What would be required for a transaction to occur at that quantity?
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