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True/False questions. Mark the correct answer and briefly explain your choice to receive full credit (2 points each) 1.The cost of getting a degree...
(e ) A severe recession reduced dramatically households’ income.
2. Suppose that initially the gasoline market is in equilibrium at a price $2.00 per gallon and a quantity of 45 million gallons per month.
Then the war in the Middle East disrupts imports of oil into the United States., shifting the supply curve for gasoline from S1 to S2.
The price of gasoline begins to rise and consumers protest. The federal government responds by setting price ceiling of $2.00 per gallon. Use the graph below to answer the following questions
Assume that demand curve intersects vertical axis at the price $9 and S2 curve intersects vertical axis at the price $1, S1 at the price $.50
All underlying work must be shown
When the war in the Middle East disrupts imports of oil into the United States and there is no price ceiling on gasoline
a. What would the dollar value of the total consumer surplus be?
b. What would the dollar value of the total producer surplus be?
What would the dollar value of deadweight loss be?
B. No assume that a price ceiling is imposed and there is no black market in gasoline.
a. What is the price of gasoline, the quantity of gasoline demanded, the quantity of gasoline supplied with the price ceiling?
b. Calculate the dollar size of total consumer surplus with the price ceiling.
c .Calculate total producer surplus with the price ceiling
d.Calculate the dollar size of deadweight loss at the price ceilings if present
e. Are all consumers made better off by the price ceiling? Explain
f. If the government removes the price ceiling, will the market efficiency increase or decrease? Why and by what dollar amount?
3. Calculate price elasticity of demand on each of the following demand curve:
A. Calculate elasticity on Demand curve D1, price changes from $20 to $10 and quantity demanded increases from 700 to 900 units
B. Calculate elasticity on Demand curve D2, price changes from $18 to $14 and quantity demanded increases from 5,000 to 9,000 units
C. Calculate elasticity on Demand curve D 3, price decreases from $32 to $24 and quantity demanded increases from 70 to 100 units
D. Explain if demand on each demand curve between the given price range is elastic, inelastic, unit elastic and why.
E. If price increases by 10 percent on each demand curve, by how the quantity demanded will change (increase or decrease) on each demand curve?
F. If business objective is to increase total revenue, how it should use the price elasticity of demand on D1, D2, D3 while preparing pricing strategy?
