Can you please help me answer these questions based on the reading below? Thanks so much!!!

APPLICATIONS OF SUPER AND FAVAIN A more elastic demand curve (b) A more inelastic demand one Demand for Natty Light Beer P Demand for gasoline Q2 Q 1 FIGURE 10.4 Elastic and inelastic demand curves, their production of pizzas by hiring more workers and buying more pizza ingredi- ents have elastic supply curves. However, supply curves tend to be inelastic (steep) when it is difficult to increase the quantity supplied as price increases, It is extremely difficult for suppliers of apartments in a city to increase the number of apartments they offer for rent when the price of renting an apartment increases. Building sizes are fixed, and it can take several years to build another apartment building. We will study price elasticity in more detail later in this chapter. Another major player impacting markets is the government. One of the main ways in which governments intervene in specific markets is by installing price floors to raise prices and support sellers or price ceilings to lower prices and help purchasers. 10.2 PRICE CEILINGS AND PRICE FLOORS 10.2.1 Price ceiling A price ceiling is a legally set maximum price. Suppliers cannot raise their price above the price ceiling. A price ceiling must be set BELOW the equilibrium price to be effective. If a price ceiling were set equal to or above equilibrium price, businesses would just charge the equilibrium market price where supply equals demand. However, if the price ceiling is set below the equi- librium price, the price falls and a shortage ensues. Price ceilings have been used in poor countries to reduce the price of food and in expensive cities to reduce the price of rent.214 MARKETS, SUPPLY AND DEMAND It is extremely expensive to live in many cities. To make living in cities more affordable, many city governments have turned to rent control, which is a price ceiling on the price of renting an apartment. The government of New York City tried to make it more affordable to live in the city, which is very important to the health of the city economy, by installing a maximum rent. The average rent of a two-bedroom apartment in Manhattan in 2020 was $5400. What would happen if the New York City government installed a price ceiling of $4000 on two-bedroom apartments? Figure 10.5 shows that the result would be a shortage. First, the supply curve for apartments tends to be very steep (inelastic). It is very difficult to increase or decrease the quantity of apartments supplied in the short run. And the demand curve for apartments also tends to be very steep (inelas- tic). People who work in New York need and want to live there, and they have few other options. The result of imposing rent control of $4000 on two-bedroom apartments is a shortage, When the price of renting an apartment falls from $5400 to $4000 per month, the quantity of apartments supplied is reduced from 75,000 to 70,000, the movement from point A to point Bin Figure 10.5. As the rent falls, some apartment owners convert their buildings to condominiums or offices, which are more profit- able. But the decrease in the price of renting an apartment from $5400 to $4000 causes more people to want city apartments: The quantity of apartments demanded increases from 75,000 to 80,000, which is the movement from point A to point C P (Rent, S/month) A $ 5400 $ 4000 C Price Ceiling I shortage D1 70 80 75 (thousands of 2-bedroom apartments per year) FIGURE 10.5 The effect of rent control on the market for two-bedroom apartments in NYC.APPLICATIONS OF SUPPLY AND DEMAND 215 on the graph. This creates a shortage of 10,000 apartments, which is the distance between point B and point C in Figure 10.5. The result of the installation of rent control is that 70,000 people now pay a lot less rent than they used to, making living in the city more affordable. However, fewer people are able to find apartments than was the case before rent control, which is not what rent control was designed to achieve. In addition, the chronic shortage of apartments created by rent control results in non-price rationing, which is the development of methods of rationing goods and services other than by price, such as queues and black markets. For example, there are long waits for people to find rent-controlled apartments. A black market develops where people can rent apartments illegally, or they can pay a bribe to the apartment owner to get access to a rent-controlled apartment. Some landlords would ask for a nonrefund- able "key deposit" of thousands of dollars! The chronic shortage of apartments created by rent control also results in poor maintenance and services. Landlords can tell renters that if they don't like the conditions in the apartment building, they should leave, because there are dozens of others who want the apartment. All of these methods of non-price rationing are, in essence, market forces trying to find a way around the rent con- trol policy. The invisible hand of the market circumvents the best intentions of the city council. After bad experiences with rent control, most cities today trying to reduce the cost of housing use soft rent controls, also known as rent stabilization. These policies guarantee landlords a "fair return" on their properties while limiting the amount of annual rent increases. Owners are required to maintain the building, but they are also allowed to pass along maintenance and improvement costs to tenants, making building upkeep more lucrative. New buildings are usually exempt from rent controls so that there is no disincentive to the construction of new apartment buildings. Note that the government could also reduce rents by increasing the supply of apartments via subsidies or by building apartment buildings themselves. However, this would be very expensive, whereas price ceilings are free to implement. They key takeaways regarding price ceilings are the following: Price ceilings are always set below the equilibrium price. Price ceilings do not shift demand or supply: The lower price set by the government causes a movement along both the supply and the demand curve. A price ceiling creates a shortage that results in non- price rationing. The opposite of a price ceiling is a price floor. 10.2.2 Price floor A price floor is a legally set minimum price. Sellers cannot lower their price below the price floor. A price floor is set above the equilibrium price in order to support sellers of a particular good. Price floors are used to support farmers and unskilled laborers (the minimum wage is a price floor). However, price floors create a chronic surplus, which has important consequences.216 MARKETS, SUPPLY AND DEMAND To see how a price floor works, let's consider a government-installed price floor on corn. Suppose that the equilibrium price of corn is $3 per bushel but corn farmers are losing money at that price. In order to keep corn farmers in business and ensure a stable supply of corn, suppose that the government sets a price floor on corn at $4 per bushel. As you can see from Figure 10.6, when the government increases the price of corn from the equilibrium price of $3 per bushel to the price floor of $4 per bushel, the result is a surplus. Increasing the price of a bushel of corn to $4 causes corn sellers to grow more corn, which increases the quantity sup- plied from 13 billion bushels per year at point A to 14 billion bushels at point C. Meanwhile, when the price increases from $3 to $4 per bushel, corn buyers reduce their purchases of corn from 13 billion bushels per year at point A to 12 billion bushels per year at point B. The result is a surplus of 2 billion bushels of corn per year, which is the distance from point B to point C on the graph. As with a chronic shortage. a chronic surplus will also lead to non-price rationing. With a surplus of corn piling up, corn farmers would be tempted to sell it illegally at a price below the price floor, and this will tend to undermine the price floor over time. The only way the government can stop non-price rationing from happening is to buy up the surplus. Thus, in many agricultural markets the govern- ment buys up the surplus created by their price floor. In Figure 10.6, this would mean purchasing 2 billion bushels of corn per year (the amount of the surplus) at $4 per bushel (the legally set price), for a cost of $8 billion per year. If the government does purchase the surplus, suppliers will end up at point C, selling 12 billion bushels of corn to private buyers and 2 billion bushels to the government for a total of 14 billion bushels. The total revenue that a supplier takes P (S/bushel) $4 { - - B surplus /C - Price Floor $3 - 12 14 Q (billions of bushels of corn per year) FIGURE 10.6 The effect of a price floor on the corn market.APPLICATIONS CHISUPPLIAND DEMAND in is found by taking the price of the product and mulusking be the seanut the product sold, Total revenue = TR = Pnce x Quanar sold = P . At point C the total revenue taken in by suppliers is (14 billion . $4 = $5 billion This is substantially more than the $39 billion of total revenue they took in when the equilibrium was at point A. Often the government likes having surplus stores of agricultural crops in case of droughts or famines, or they can use the surplus to supply the military or school lunch programs, However, because storing surplus crops is expensive. sometimes the government actually pays farmers not to produce. For example, in Figure 10.6. the government could have paid farmers not to produce 2 billion bushels of corn Shifting the supply curve to the left by 2 billion would have moved the market equilibrium from point A to point B, and farmers would still be making more money than before. The key takeaways regarding price floors are the following: Price floors are always set above the equilibrium price. Price floors do not shift demand or supply: The higher price causes a movement along both the supply and demand curves. A price floor creates a surplus that results in non-price rationing, the government purchasing the surplus, or the government paying to eliminate the surplus. Another type of government intervention in markets occurs when they use excise taxes or per unit subsidies to discourage or encourage production of particular goods. 10.3 PER UNIT SUBSIDIES AND EXCISE TAXES 10.3.1 Per unit subsidy With a per unit subsidy, the government pays suppliers a fixed amount for each unit they sell. Per unit subsidies increase the supply curve because they lower the costs for suppliers. More specifically, per unit subsidies shift the supply curve down (vertically) by exactly the amount of the per unit subsidy. For example, suppose the federal government decides to help corn farmers with a $1 per bushel subsidy instead of a $4 per bushel price floor (see Figure 10.6). In Figure 10.7, the corn market starts out in equilibrium at point A with a price of $3 and a quantity of 13 billion bushels of corn. A per unit subsidy of $1 per bushel of corn shifts the supply curve down by exactly $1 to S,. Suppliers are now able to sell each bushel of corn for $1 less than before and still make the same amount of money. Notice that point B on the new supply curve S, is exactly $1 below point A on S. But at a price of $2, more corn is demanded than can be supplied, resulting in a shortage and causing the new equilibrium price is rise to $2.30 and the new equilibrium quantity to reach 13.7 billion bushels of corn. The new equilibriumWeekly Assignment #4-Due Monday (9/19) of Week 5 at the beginning of class Part II. Price floors and price ceilings. Read Schneider, Section 10.2, Price Ceilings and 2. The US government is planning to install a P 200 $180 per ton price floor to help soybean farmers. Soybeans a. (5) On the graph, show the impact of a $180 per 180 ton price floor. Label the graph carefully. 160 140 b. (5) The cost of the $180 per ton price floor to 120 the government for buying the surplus is: (show your work). 100 80 5 2 40 20 c. (5) The change in total revenue that soybean D producers will experience as a result of the price floor is: $_ (Show your work.) Q (tons) 3. Soybeans are a major food staple, used to make Soybean oil, tofu, and other essential food supplies. Suppose that the government wants to reduce the price of Soybeans so that food is more affordable. Using the same soybean market graph, determine what will happen to the market for Soybeans if the government imposes a price ceiling of $60 per ton on the market for Soybeans? a. (5) Explain the impact of a $60 per ton price ceiling on the soybean market. Refer to the graph in your explanation. (5) The cost to the government if implementing the price ceiling in question 3a. will be Explain your answer briefly. c. (5) If the goal of the policy is to provide a greater number of people with a larger quantity of inexpensive Soybean products, will this policy achieve its goal? Why or why not