Chapter Exercises

were imposed during World War II exacerbated the New York City housing shortage during the 1960s and 1970s. 3.10Explain what is meant by the rationing function of prices. 3.11Discuss the possible effect of a price ceiling. 3.12The use of ration coupons to eliminate a shortage can be effective only if trading ration coupons is effectively prohibited.Explain. 3.13Scalping tickets to concerts and sporting events is illegal in many states.Yet,it may be argued that both the buyer and seller of “scalped” tickets benefit from the transaction.Why,then,is scalping illegal? Who is really being “scalped”? Explain. 3.14The U.S.Department of Agriculture (USDA) is committed to a system of agricultural price supports.To maintain the market price of certain agricultural products at a specified level,the USDA has two policy options.What are they? Illustrate diagrammatically the market effects of both policies. 3.15Minimum wage legislation represents what kind of market interference? What is the government’s justification for minimum wage legislation? Do you agree? Who gains from minimum wage legislation? Who loses? 3.16Explain the allocating function of prices.How does this differ from the rationing function of prices?

CHAPTER EXERCISES

3.1Yell-O Yew-Boats,Ltd.produces a popular brand of pointy birds called Blue Meanies.Consider the demand and supply equations for Blue Meanies:

where Qx = monthly per-family consumption of Blue Meanies

Px = price per unit of Blue Meanies

I = median annual per-family income = $25,000

Py = price per unit of Apple Bonkers = $5.00

W = hourly per-worker wage rate = $8.60 a.What type of good is an Apple Bonker? b.What are the equilibrium price and quantity of Blue Meanies? c. Suppose that median per-family income increases by $6,000.

What are the new equilibrium price and quantity of Blue Meanies? d.Suppose that in addition to the increase in median per-family ncome,collective bargaining by Blue Meanie Local #666 resulted in

Q P I P x x yD, . .= - + + 150 2 0001 15 Q P W x xS, .= + -60 4 25

a $2.40 hourly increase in the wage rate.What are the new equilib rium price and quantity? e.In a single diagram,illustrate your answers to parts b,c,and d. 3.2Consider the following demand and supply equations for sugar:

where P is the price of sugar per pound and Q is thousands of pounds of sugar. a.What are the equilibrium price and quantity for sugar? b.Suppose that the government wishes to subsidize sugar production by placing a floor on sugar prices of $0.20 per pound.What would be the relationship between the quantity supplied and quantity demand for sugar? 3.3Occidental Pacific University is a large private university in California that is known for its strong athletics program,especially in football.At the request of the dean of the College of Arts & Sciences,a professor from the economics department estimated a demand equation for student enrollment at the university

where Qx is the number of full-time students, Px is the tuition charged per full-time student per semester, I is real gross domestic product (GDP) ($ billions) and Py is the tuition charged per full-time student per semester by Oriental Atlantic University in Maryland,Occidental Pacific’s closest competitor on the grid iron. a.Suppose that full-time enrollment at Occidental is 4,000 students.If

I = $7,500 and Py = $6,000,how much tuition is Occidental charging its full-time students per semester? b.The administration is considering a $750,000 promotional campaign to bolster admissions and tuition revenues.The economics professor believes that the promotional campaign will change the demand equation to

If the professor is correct,what will Occidental’s full-time enrollment

be? c. Assuming no change in real GDP and no change in full-time tuition charged by Oriental,will the promotional campaign be effective? (Hint:Compare Occidental’s tuition revenues before and after the promotional campaign.)

Q P D = -1000 1000 , ,

Q P S = +800 1000 ,

Q P I P x x y = - + + 5000 05 01 025 , . . .

Q P I P x x y = - + + 5100 045 01 025 , . . .