1) Lovers of classical music persuade the government to impose a binding price ceiling of $50 per concert ticket, arguing that cheaper tickets will help more people to attend concerts of classical music.
a) Are they correct?
b) Will more people be attending classical music concerts?
c) Explain your answers
Question 2: Assume a different scenario where the government would like to make concert tickets more affordable and decided to impose a non- binding price ceiling of $50 per concert ticket. Explain what will be the impact of this policy on the number of people attending classical music concerts? Question 3: The table provided shows the demand and supply of apples Price per Quantity Quantity kg ($) demanded supplied (tons (tons) $ 11 1 7 10 6 9 8 W N 5 4 4 3 2 5 a) What is the equilibrium price and quantity of apples? Following farmers' complaints about the high cost of labour mostly (fruit pickers), the government imposed a price floor $2 higher than the equilibrium price. b) What is the new market price and how many tons of apples farmers were able to sell following the introduction of the price floor? Assume that following the introduction of the price floor, very angry consumers demand a reduction in the price of apples and the government imposes a price ceiling $1 below the former price floor. c) What is the new price of apples and how many tons of apples farmers can sell after the introduction of the price ceiling?Make sure you understand that: o The buyers will buy the good only when they value the good higher than the price and sellers will supply the good only when the cost of making the good is lower than the price. - Free markets allocate the supply of goods to the buyers who value them most highly. as measured by their willingness to pay. Free markets allocate the demand for goods to the sellers who can produce them at least cost. Total Surplus: Consumer Surplus + P ' $ "cei ) Producer Surplus Fe 0 03 Quantity 0 Free markets produce the quantity of goods that maximises the sum of consumer and producer surplus which reflect an efcient allocation of resources in terms of maximising total surplus. To understand the impact of policy on social welfare, you 23 must be able to correctly identify the areas of consumer and producer surplus on the market diagram. 0.1 Consider the market for movies online. a) How do we define the consumer surplus and where is the consumer surplus on the graph? How do we define the producer surplus and where is the producer surplus on the graph? b) Suppose the price for buying videos online tails. Explain what will happen to the consumer surplus of: . Existing buyers who were already purchasing music online. . Potential buyers who have not yet begun shopping for music online. (3) Mary is one of movie fans buying movies online for $30 per month. She receives a consumer surplus of $4 when buying the movie online. What is her willingness to
