Exam 5: Using Supply and Demand

What is a price ceiling? What is a price floor? Give a real world example of each. What happens to the relationship between quantity demanded and the quantity supplied with an effective price ceiling? What happens to the relationship between quantity demanded and the quantity supplied with an effective price floor? What is likely to happen if there is a shortage of rent controlled apartments? What is likely to happen if there is a surplus of price supported grain?

Start by drawing a supply and demand equilibrium situation. Using your diagram, demonstrate graphically and explain verbally the impact of an increase in demand on equilibrium price and quantity. What could cause this shift?

What are quantity restrictions? Use a supply/demand diagram to demonstrate the effect of quantity restrictions on equilibrium price and quantity of a good when there is an increase in demand.

Americans over the age of 65 are covered by Medicare. For them, the medical market is a third-payer market. What is a third-party payer market? How does total quantity of medical services provided in a third-payer market, such as Medicare, compare to a market in which the purchaser of medical services pays the full cost? How does price of medical services provided in a third-part payer market, such as Medicare, compare to the price in a market in which the purchaser of medical services pays the full cost? If third-payer markets, such as Medicare, benefit buyers by providing a greater quantity of services and sellers by yielding a higher price, who is hurt by such a payments system?

Consider the following scenario: Average household incomes have grown leading to an increase in electrical appliance use, boosting demand for electricity faster than capacity is being added. Analyze the impact on quantity demanded and price of electricity using a supply and demand diagram.

What is a price ceiling? What happens to the relationship between quantity demanded and supplied with an effective price ceiling?

Define an excise tax and give three examples. Explain the relationship between a tariff and an excise tax. Use supply and demand analysis to explain why the equilibrium price of apples will rise and the equilibrium quantity will fall if an excise tax is levied on apples. Explain why the price of apples will not rise by the full amount of the tax.