Review Questions FI Pric 48 1. You are an advisor to the Egyptian government, wh

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Review Questions FI Pric 48 1. You are an advisor to the Egyptian government, which has placed a price ceiling on bread. Unfortunately many families still cannot buy the bread they need Explain to government officials why the price ceiling has not increased consumption of bread. [LO 6.1 42 30 2. Suppose there has been a long-standing price ceiling on housing in your city. Recently population has declined and demand for housing has decreased. What will the decrease in demand do to the efficiency of the price ceiling? [LO 6.1 24 18 3. Suppose the United States maintains a price floor for 12 spinach. Why might this policy decrease revenues for spinach farmers? [LO 6.2] 4. Suppose Colombia maintains a price floor for coflts beans. What will happen to the size of the deadweight loss if the price floor encourages new growers to the market and produce coffee? [LO 6.2] that smok 5. Many states tax cigarette purchases. Suppose ers are unhappy about paying the extra charge the state imposes cigarettes. Will it help smokers if the tax on the stores that sell the cigarettes rather t smokers? Why or why not? [LO 6.3] , fettes? Why s. Do you expect the tax inci 7. In the United States, many agriculturahat 6. Consider a tax on cigarettes. Do you expe he of dig or sellers ciga products (sul bridized. What are dence to fall more heavily on buyers rettes? Why? [LO 6.3 2. ultural prot as corn, wheat, and rice

Explanation / Answer

2) When there has been a long standing price ceiling and the population declines resulting in the decline in demand for housing,as price ceiling is the highest price possible for a product,then due to the decrease in demand,the efficiency of the price ceiling would become non-binding so there would be no shortage or deadweight loss.

3) Suppose the United States maintaines a price floor for spinach.This policy might decrease revenues for spinach farmers.

The price floor is the lowest legal price a good can be sold at.The policy might decrease the revenue for spinach farmers if the demand for spinach is elastic that is the quantity demanded will change more in response to change in its price.

4) Suppose columbia maintaines a price floor for coffee beans.If the price floor encourages new growers to enter the market and produce coffee then, the size of the deadweight loss would increase because the supply curve would shift to the right as a result of increase in production from new firms.The equilibrium price would fall from the original level.

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