A recent study found that the demand-and-supply schedules for Frisbees are as fo

ID: 1134287 • Letter: A

Question

A recent study found that the demand-and-supply schedules for Frisbees are as follows: 3. Price per Frisbee Quantity Demanded Quantity Supplied $11 10 1 milion Frisbees 15 million Frisbees 12 8 8 10 a. What are the equilibrium price and quantity of Frisbees? b. Frisbee manufacturers persuade the government that Frisbee production improves scientists' un- derstanding of aerodynamics and thus is import ant for national security. A concerned Congress votes to impose a price floor $2 above the equilib- rium price. What is the new market price? How many Frisbees are sold? c. Irate college students march on Washington and demand a reduction in the price of Frisbees. An even more concerned Congress votes to repeal the

Explanation / Answer

a. Equilibrium price and quantity are determined at intersection of demand and supply.

As you see in the table, the demand equals supply at 6 million fisbees at price of $8per firsbee.

Thus equilibrium quantity is 6 million fisbees at price of $8 per firsbee.

b. A price floor is the minimum price below which no seller can sold. Thus is this price is upper than competitive equilibrium price then this floow price becomes new market equilibrium price. A price floor of $2 above equilibrium proce was issued thus the new equilibrium market price becomes : $8+$2 = $10.

Now at this price ($10) quantity supplied is 12 million but quantity demanded is 2 million. As only the demanded willl be supplied thus output becomes 2 million.

Therefore new equilibrium output is 2 million frisbees at equilibrium price of $10 per firsbee.

2 million firsbees are sold at price of $10 per firsbee.

c. Price eciling is the upper limit higher to which no seller can sold. Now a price ceiling of $1 below the fomer price fllow has been enacted. former price floor was $10 and $1 below it will be $9.

Thus new equilibrium price is $9. At this price 9 million is supplied but 4 million is demanded.

Hence 4 million frisbee will be sold at price of $9 per frisbee.

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