QUESTION 1

Last week I asked you to describe a situation where you had to contemplate a purchase. You were essentially comparing theMarket Price of an item to yourMarginal Benefit of the item. Let's continue using that same situation.

• Quickly recap last weeks discussion. What the item was, how much it cost, and did you buy it?

Now consider what would happen if the government imposed aPrice Ceiling on the item. To be effective, the price ceiling would need to be lower than the initial price.

• What is the purpose of the price ceiling?
• How would it effect your decision (or ability) to buy the item?
• Could it have a negative impact on you or others?

Try to consider the effects on theConsumer Surplus, Producer Surplus and Deadweight Loss.

QUESTION 2

Last week I asked you to describe a situation where you had to contemplate a purchase. You were essentially comparing theMarket Priceof an item to yourMarginal Benefitof the item. Let's continue using that same situation.

• Quicklyrecap last weeks discussion. What the item was, how much it cost, and did you buy it?

Now let's put aTax on the item (or since all of these items already have taxes on them, lets increase the tax). Let's assume the sales tax is increased from 8% to 10%.

• What will this do to your desire to buy the product?
• Who would benefit from the higher sales tax rate?
• Who would be harmed due to the higher tax rate?

Try to consider the effects on theConsumer Surplus, Producer Surplus and Deadweight Loss.