1. Should any government body; local, state, or federal, be involved in setting prices?
Why or Why Not?
Formulate your answer as if you were responding to this question by someone who is not familiar with economics.
2. Put yourself in the position of a wheat farmer in the United States. What type activity would you like to see the Supply Curve take? And the Demand Curve?
Explain your answers with sound economic reasoning.
3. The Federal Reserve is an independent agency of the federal government.
Should the Federal Reserve be placed under the control of either the Congress or the Executive branch?
Explain your answer.
4. What is the result of a price ceiling that is set below the equilibrium price?
5. Name 2 results of price ceilings. Do not mention Shortages or Surpluses.© BrainMass Inc. brainmass.com October 24, 2018, 7:20 pm ad1c9bdddf
The result of a price ceiling is demonstrated.
Acme Water Price Ceiling
Acme Water is a privately owned company that is the sole supplier of water to a rural town in Pennsylvania. The owner of the firm has provided the manager of the company an incentive to maximize the firm's profits, and the manager is currently selling 100,000 gallons of water per week at a price of $.05 per gallon. The marginal cost of water is zero, but the firm's average cost of this level of output is $.01 per gallon.
a. Determine Acme Water's profits.
b. Now suppose that local government imposes a price ceiling on water at a price of $.01 per gallon. Will the firm earn economic profits of zero as a result of this price ceiling? Explain.
c. Does the price ceiling of $.01 per gallon result in a shortage of water in Acme's service area?