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Markets, International Trade, and the Government

You are given the following scenarios for consideration:

Scenario 1: Assume that the government imposed a price ceiling on gasoline in order to prevent prices from getting too high. What are the economic implications of this action in the gasoline markets?

Scenario 2: Assume that the government imposed a price floor on wages (minimum wage) in order to make sure that workers can earn a living wage. Is this a price floor? What are the economic implications of this action in the labor markets?

Scenario 3: What are the gains and losses of international trade? What happens when tariffs are imposed, in terms of the importing and exporting countries?

Scenario 4: If the government doubled the tax on gasoline, would the tax revenues increase or decrease? Why? Use graphs as needed and explain your answers thoroughly.

Solution Preview

Scenario 1: Assume that the government imposed a price ceiling on gasoline in order to prevent prices from getting too high. What are the economic implications of this action in the gasoline markets?

According to the Scholar (2013), price ceiling is the legislated maximum level that the price of a good or service can go up to is a legislated price. Price ceiling imposed by the government though effective in the short run, may have its inherent problems later.
Price ceiling imposed may be higher or lower than the equilibrium price.
If the price ceiling is higher than the equilibrium price, it has no use because firms will continue to sell at the equilibrium price and consumers will be willing to buy at an amount at the equilibrium price. For example, if the government imposed a price ceiling of $250 for a product or service currently selling at $150, nobody would be noticing it because consumers will still patronize the product or service at the rate of $150. Economists termed this as "non-binding price ceiling".

The graph in the attached work document shows a price ceiling below the equilibrium ...

Solution Summary

The solution discusses scenarios on price ceiling on gasoline and prices, price floor on wages, gains and losses of international trade, tariffs imposition, and doubled the tax on gasoline.

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