2. Problems and Applications Q2 The following graph shows the market for cheese. Suppose the government decides to impose a price floor of $3 per pound in the cheese market. A price floor of $3 per pound of cheese V be binding. Use the grey point (star symbol) to ind ice of cheese and the quantity demanded after the price floor of $3 per pound is implemented. Then use the green point (triangle symbol ) t he price of cheese and the quantity supplied at the same price floor. EN \\3/ 10 -- O 9 Supply A 8 Demand '0 S a 7 '3' i E 6 Supply a s w 3 . a a r 5 Price and GD 0 \"a 3 A g Demand '3- 2 Price and QS 0 1llllllllli 0 1 2 3 4 5 6 7 8 9 10 Quantity of Cheese (Thousands of pounds) With a price floor of $3 per pound of cheese, there will be V of cheese. neither a surplus nor a shortage True or False: The price floor of $3 per pound of cheese re roducers. a surplus 0 True a shortage O False Suppose the government imposes a binding price floor in the cheese market and agrees to purchase all the surplus cheese at the price floor. Compared to the basic price floor, V benefit from this new policy and V lose. With a price floor of $3 per pound of cheese, there will be V of cheese. True or False: The price floor of $3 per pound of cheese reduces the total revenue of cheese producers. 0 True O False producers of cheese consumers of cheese Suppose the government imposes the cheese market and agrees to purchase all the surplus cheese at the price floor. taxpayers Compared to the basic price floor, V benefit from this new policy and V lose. With a price floor of $3 per pound of cheese, there will be 7 of cheese. True or False: The price oor of $3 per pound of cheese reduces the total revenue of cheese producers. 0 True 0 False consumers of cheese taxpayers Suppose the government imposes a binding price floor in the cheese market and agrees to pur -ese at the price floor. producers of cheese Compared to the basic price floor, V benefit from this new policy and V lose. 7. Problems and Applications Q7 Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax on each gallon of gasoline sold. Suppose they decided to impose the tax on consumers. In the following graph, shows the effect of a $0.50 tax on each gallon of gasoline sold imposed on consumers by shifting the demand or supply curve. /-\\\\ K?) 3.0 - O 2-5 Supply Demand U 2.0 Supply Price of Gasoline (Dollars per gallon) 2 | 1.0 Demand 0.5 O 1 l | l | l i O 1 2 3 4 5 6 Quantity of Gasoline (Thousands of gallons) True or False: The effect of the tax will be the same regardless of whom the tax is imposed on. 0 True 0 False This tax would be less effective in reducing the quantity of gasoline consumed if the demand for gasoline were V elastic. True or False: Consumers of gasoline are hurt by this tax. E O True 0 False Workers in the oil industry are V by this tax. True or False: The effect of the tax will be the same regardless of whom the tax is imposed on. O True O False This tax would be less effective in reducing the quantity of gasoline consumed if the demand for gasoline were V elastic. True or False: Consumers of gasoline are hurt by this tax. 0 True hurt helped Workers in the oil industry are V by this tax. 0 False 10. Problems and Applications Q10 A market is described by the following supply and demand curves: 4P 400 P 95 Q0 The equilibrium price is and the equilibrium quantity is 310 . Suppose the government imposes a price ceiling of $90. This price ceiling is not binding V , and the market price will be $ . The quantity supplied will be:] , and the quantity demanded will be:] . Therefore, a price ceiling of $90 will result in a shortage V . Suppose the government imposes a price floor of $90. This price floor is V , and the market price will be $ . The quantity supplied will be:]and the quantity demanded will be . Therefore, a price floor of $90 will result in a surplus Y . Instead of a price control, the government levies a tax on producers of $10. As a result, the new supply curve is: QS = 4(P 10) With this tax, the market price will be , the quantity supplied will be [:1 , and the quantity demanded will be . The passage of such tax will result in neither a shortage nor a surElus V . 10. Problems and Applications Q10 A market is described by the following supply and demand curves: Qs = 41' Q1; = 400 P The equilibrium price is $90 and the equilibrium quantity is 310 . Suppose the government imposes a price ceiling of $90. This price ceiling is not binding V , and the market price will be supplied will be , and the quantity demanded will be . Therefore, a price ceiling of $90 will result in a shortage V . . The quantity Suppose the government imposes a price floor of $90. This price floor is V , and the market price will be 3; e floor of $90 will result in supplied will be C] and the quantity demanded will be C] . T - not binding asur lus V . + Instead of a price control, the government levies a tax on producers of $ , the new supply curve is: Q = 4(P10) With this tax, the market price will be $88 , the quantity supplied will be , and the quantity demanded will be such tax will result in neither a shortage nor a surplus V . 312 . The quantity . The passage of