Share
Explore BrainMass

Microeconomics concepts: surplus or shortage?

7. What entity establishes a price ceiling and does it require government sanction for violators? Will it result in a surplus or a shortage?

8. If a producer overproduces and sets the price of his product too high to allow him to sell all of his production, does this cause a surplus or an excess supply condition?

9. What entity establishes a price floor and does it require government sanction for violators? Will it result in a surplus or a shortage?

10. An increase in the supply of a good is expected to have what effect on its price? What will be the effect on the demand for substitutes?

11. If the own-price elasticity of demand for gasoline is -.2 and there is a 10% increase (+.10) in the price of gasoline, what will be the percentage change to the equilibrium demand for gasoline?

12. Define a black market in terms of a Price Ceiling.

13. A regulated transportation monopoly is losing money. The Monopoly goes to its government regulators with a request to raise their rates (price). An economist on the regulatory commission says that raising rates will bring in less revenue as customers change to substitute forms of transportation. The Monopoly and the economist have different views of the elasticity of demand for the monopoly's transportation services. Which one thinks the demand is inelastic and which one thinks it is elastic?

Attachments

Solution Preview

7. What entity establishes a price ceiling and does it require government sanction for violators? Will it result in a surplus or a shortage?

Price ceilings can be established by any entity with the authority to regulate a market. In the US, certain industries, such as utilities are regulated. Government sanction is necessary if the price ceiling is below the market price. This is because of the high profits that could be obtained by violators. There will be a shortage in the market, as buyers want more of the good than sellers are willing to provide.

8. If a producer overproduces and sets the price of his product too high to allow him to sell all of his production, does this cause a surplus or an excess supply condition?

A surplus occurs when the price of a good is too high, while excess supply occurs when there is more of a good than the market can absorb. Because the seller set his price too ...

Solution Summary

Discussion of price ceilings, excess supply, and monopoly regulation.

$2.19