1. Price as a rationing device
Suppose that there are three beachfront parcels of land available for sale in Huntington,
and six people who would each like to purchase one parcel. Assume that the parcels are
essential
...
1. Price as a rationing device
Suppose that there are three beachfront parcels of land available for sale in Huntington,
and six people who would each like to purchase one parcel. Assume that the parcels are
essentially identical and that the minimum selling price of each is $575,000. The
following table states each person's willingness and ability to purchase a parcel.
Willingness and Ability to Purchase
(Dollars)
Brian 750,000
Crystal 660,000
Edison 600,000
Hilary 550,000
Kevin 520,000
Maria 510,000
Which of these people will buy one of the three beachfront parcels? Check all that apply.
Brian
Crystal
Edison
Hilary
Kevin
Maria
Points:
1 / 1
Close Explanation
Explanation:
Brian, Crystal, and Edison will purchase the parcels because they are the only ones willing and
able to meet the minimum selling price of $575,000. One or more of the other three people
might have the ability but not the willingness to pay the required price. Moreover, perhaps
Hilary, Kevin, and Maria have a strong desire to own beachfront land in Huntington, but they do
not have the ability to pay the selling price.
Assume that the three beachfront parcels are sold to the people that you indicated in the
previous section. Suppose that a few days after the last of those beachfront parcels is sold,
another essentially identical beachfront parcel becomes available for sale at a minimum price
of $535,000. This fourth parcel will
be sold because Hilary
will purchase it from the seller for at least the minimum price.Points:
1 / 1
Close Explanation
Explanation:
To determine what will happen with the fourth parcel, compare the minimum selling price with
the willingness and ability to pay of the remaining buyers. The remaining buyer with the
highest willingness and ability to pay is Hilary at $550,000. Since $550,000 is greater than the
minimum selling price of $535,000 for this parcel, Hilary will purchase the parcel.
1. Price as a rationing device
Suppose that there are three beachfront parcels of land available for sale in Huntington, and
six people who would each like to purchase one parcel. Assume that the parcels are essentially
identical and that the minimum selling price of each is $745,000. The following table states
each person's willingness and ability to purchase a parcel.
Willingness and Ability to Purchase
(Dollars)
Felix 900,000
Janet 810,000
Larry 770,000
Megan 720,000
Raphael 690,000
Susan 680,000
Which of these people will buy one of the three beachfront parcels? Check all that apply.
Felix
Janet
Larry
Megan
Raphael
Susan
Points:
1 / 1
Close Explanation
Explanation:
Felix, Janet, and Larry will purchase the parcels because they are the only ones willing and able
to meet the minimum selling price of $745,000. One or more of the other three people might
have the ability but not the willingness to pay the required price. Moreover, perhaps Megan,Raphael, and Susan have a strong desire to own beachfront land in Huntington, but they do not
have the ability to pay the selling price.
Assume that the three beachfront parcels are sold to the people that you indicated in the
previous section. Suppose that a few days after the last of those beachfront parcels is sold,
another essentially identical beachfront parcel becomes available for sale at a minimum price
of $732,500. This fourth parcel will not
be sold because no one
will purchase it from the seller for at least the minimum price.
Points:
1 / 1
Close Explanation
Explanation:
To determine what will happen with the fourth parcel, compare the minimum selling price with
the willingness and ability to pay of the remaining buyers. The remaining buyer with the
highest willingness and ability to pay is Megan at $720,000. However, since $720,000 is less
than the minimum selling price of $732,500 for this parcel, no one will purchase the parcel.
The seller will have to lower his minimum selling price if he wants to find a buyer.
2. Price controls in the Florida orange market
The following graph shows the annual market for Florida oranges, which are sold in units of 90-
pound boxes.
Use the graph input tool to help you answer the following questions. You will not be graded on
any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in
each grey field will change accordingly.Graph Input Tool
Market for Florida Oranges
Price
(Dollars per box)
15
Quantity Demanded
(Millions of boxes)
500
Quantity Supplied
(Millions of boxes)
210
In this market, the equilibrium price is
$25per box, and the equilibrium quantity of oranges is
250
million boxes.
Points:
1 / 1
Close Explanation
Explanation:
The equilibrium price and quantity of oranges occur at the intersection of the demand and
supply curves. Using the graph input tool, you can see that this occurs at a price of $25 per
box, which is where the quantity of oranges that producers are willing to supply is equal to the
quantity consumers demand (250 million boxes).
For each price listed in the following table, determine the quantity of oranges demanded,
the quantity of oranges supplied, and the direction of pressure exerted on prices in the
absence of any price controls.
Price Quantity Demanded Quantity Supplied Pressure on Prices
(Dollars per box) (Millions of boxes) (Millions of boxes)
30
145 270
Downward
20
375 230
Upward
Points:
0.67 / 1
Close Explanation
Explanation:
At a price of $20 per box, consumers demand 375 million boxes of oranges, but producers
supply only 230 million boxes. Therefore, there is a shortage of 145 million boxes. In the
absence of a price ceiling, a shortage exerts upward pressure on prices until there is neither a
surplus nor a shortage.At a price of $30 per box, consumers demand 125 million boxes of oranges, but producers
supply 270 million boxes. Therefore, there is a surplus of 145 million boxes. In the absence of a
price floor, a surplus exerts downward pressure on prices until there is neither a surplus nor a
shortage.
True or False: A price ceiling above $25 per box is a binding price ceiling in this market.
(Economists call a price ceiling that prevents the market from reaching equilibrium a binding
price ceiling.)
True
False
Points:
1 / 1
Close Explanation
Explanation:
In order for a price ceiling to be binding—that is, for it to prevent the market from reaching
equilibrium—it must be set below the equilibrium price. In this case, you found that the
equilibrium price was $25 per box. Therefore, any price ceiling below $25 per box would be
binding, and any price ceiling set at or above $25 per box would not.
2. Price controls in the Florida orange market
The following graph shows the annual market for Florida oranges, which are sold in units of 90-
pound boxes.
Use the graph input tool to help you answer the following questions. You will not be graded on
any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in
each grey field will change accordingly.In this market, the equilibrium price is
$25
per box, and the equilibrium quantity of oranges is
450
million boxes.
Points:
1 / 1
Close Explanation
Explanation:
The equilibrium price and quantity of oranges occur at the intersection of the demand and
supply curves. Using the graph input tool, you can see that this occurs at a price of $25 per
box, which is where the quantity of oranges that producers are willing to supply is equal to the
quantity consumers demand (450 million boxes).
For each price listed in the following table, determine the quantity of oranges demanded,
the quantity of oranges supplied, and the direction of pressure exerted on prices in the
absence of any price controls.
Price Quantity Demanded Quantity Supplied Pressure on Prices
(Dollars per box) (Millions of boxes) (Millions of boxes)
15
530 270 Upward
35
350 630 Downward
Points:
0.67 / 1
Close ExplanationExplanation:
At a price of $15 per box, consumers demand 522 million boxes of oranges, but producers
supply only 270 million boxes. Therefore, there is a shortage of 252 million boxes. In the
absence of a price ceiling, a shortage exerts upward pressure on prices until there is neither a
surplus nor a shortage.
At a price of $35 per box, consumers demand 378 million boxes of oranges, but producers
supply 630 million boxes. Therefore, there is a surplus of 252 million boxes. In the absence of a
price floor, a surplus exerts downward pressure on prices until there is neither a surplus nor a
shortage.
True or False: A price ceiling above $25 per box is not a binding price ceiling in this market.
(Economists call a price ceiling that prevents the market from reaching equilibrium a binding
price ceiling.)
True
False
Points:
1 / 1
Close Explanation
Explanation:
In order for a price ceiling to be binding—that is, for it to prevent the market from reaching
equilibrium—it must be set below the equilibrium price. In this case, you found that the
equilibrium price was $25 per box. Therefore, any price ceiling below $25 per box would be
binding, and any price ceiling set at or above $25 per box would not.
2. Price controls in the Florida orange market
The following graph shows the annual market for Florida oranges, which are sold in units of 90-
pound boxes.
Use the graph input tool to help you answer the following questions. You will not be graded on
any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in
each grey field will change accordingly.
In this market, the equilibrium price is
$25
per box, and the equilibrium quantity of oranges is
400
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