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Solution: Graph the curves in Exercises 105–108. Explain the

University Calculus: Early Transcendentals | 2nd Edition | ISBN: 9780321717399 | Authors: Joel R. Hass; Maurice D. Weir; George B. Thomas Jr. ISBN: 9780321717399 65

Solution for problem 105E Chapter 2.6

University Calculus: Early Transcendentals | 2nd Edition

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University Calculus: Early Transcendentals | 2nd Edition | ISBN: 9780321717399 | Authors: Joel R. Hass; Maurice D. Weir; George B. Thomas Jr.

University Calculus: Early Transcendentals | 2nd Edition

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Problem 105E

Graph the curves in Exercises 105–108. Explain the relationship between the curve’s formula and what you see.

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Supply demand and equilibrium ch 6, 8 Government policy and equilibrium prices - So at the equilibrium price where (Qd=Qs) total surplus (gains from trade) equal s the area above supply and below demand o Gains from trade are a measure of how much better off the operation of markets make us - However, gov’t official- and yes we the voters often do not like market prices and quantities o “price gouging” - Can gov’t action produce “better” prices Government intervention in markets - Gov’t intervention in markets is common - We will look at 2 regulatory tools: o Price controls (ch 8)  Price ceilings  Price floors o Taxes and subsidies (ch 6) Price Controls (ch 8) - Price ceiling- legislated maximum price o Ex:  Rent controls  Gas in 1970’s  Many goods in WWII o Real life ex: widgets  Assume the equilibrium price of widgets is $60 and quantity is 40 million  But a price of $60 for a widget is clearly “unreasonable and unaffordable” says Bernie, who pushes for a max widget price of $25  Lost consumer surplus+ lost producer surplus=deadweight surplus o Numerical ex:  Qd = 100 – P equilibrium price = $60  Qs = P – 20 Equilibrium price = $40  Set max price of 25  Bernie says people won’t buy more at lover price “only what they need” and production of widgets won’t be effected (companies still make profits”  Conusmers DO buy more widgets at a lower price: Qd rises to (100-25) = 75  Suppliers DO supply fewer widgets at lower prices: Qs falls to (25-20) = 5  A widget shortage (75-5) of 70 is created  Ceiling set above equilibrium: doesn’t effect anything (non- binding) o Possible effects of price ceilings  Price ceilings can cause time to be wasted in line  Can cause a misallocation of resources  Since there is a shortage and prices cant adjust, highest value demanders don’t necessarily get the good  Price ceilings can cause reductions in product quality  Maybe instead of lowering quantity supplied when price drops, producers simply produce a lower quality good (cheaper for them to make) - Price floor- legislated minimum price – a legal minimum on the price at which a good can be sold o Ex  Minimum prices for agricultural products (milk)  To keep the little farmers around against big companies who can afford to put up super low prices) o Price floors create  Surpluses  A loss in gains from trade  Wasteful increase in quality  Misallocation of resources  Note: a price floor must be binding (ie set ABOVE the equilibrium price) to have an effect on the market) o Quick overview of the market for labor  What determines the wage for a job  Supply and demand  Supply: (workers) opportunity cost o Will you take a job at $5 per hour Depends on value of your next best alternative (might be another wage) might be leisure (((((REST ON Bb)))  Demand (employers) benefit (value generated) o Ex: minimum wage:  Higher wages, more job seekers (Q*  Qs)  Higher wages, fewer job offers (Q*  Qd)  Creates a surplus of workers (Qs – Qd)  What workers are most affected by minimum wage Low skilled labor! - Price controls- bottom line o Price controls reduce gains from trade, making society worse off o Although a lucky few may be able to buy or sell at the controlled prices, the controls lead to a lot of inefficiencies!  Shortages  Surpluses  Black markets  Long lines  Lower quality goods o If you seek to help the poor, give the money (ex. Earned income tax credit) o Don’t mess with prices!  Prices signal important info about benefits and costs. Price controls prevent them from doing so o Ex: rent controls  Regulation to keep rets from rising to equilibrium prices  Creates shortages  Gets worse over time

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Chapter 2.6, Problem 105E is Solved
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Textbook: University Calculus: Early Transcendentals
Edition: 2
Author: Joel R. Hass; Maurice D. Weir; George B. Thomas Jr.
ISBN: 9780321717399

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Solution: Graph the curves in Exercises 105–108. Explain the