Check Your Understanding

89

  1. Question

    On game days, homeowners near Middletown University’s stadium used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee of $7. Use the accompanying supply and demand diagram to show how each of the following can result from the price ceiling.

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    1. Some homeowners now think it’s not worth the hassle to rent out spaces.

    2. Some fans who used to carpool to the game now drive alone.

    3. Some fans can’t find parking and leave without seeing the game.

    Explain how each of the following adverse effects arises from the price ceiling.

    1. Some fans now arrive several hours early to find parking.

    2. Friends of homeowners near the stadium regularly attend games, even if they aren’t big fans. But some serious fans have given up because of the parking situation.

    3. Some homeowners rent spaces for more than $7 but pretend that the buyers are nonpaying friends or family.

  2. Question

    True or false? Explain your answer. A price ceiling below the equilibrium price in an otherwise efficient market does the following:

    1. increases quantity supplied

    2. makes some people who want to consume the good worse off

    3. makes all producers worse off

  3. Question

    The state legislature mandates a price floor for gasoline of PF per gallon. Assess the following statements and illustrate your answer using the figure provided.

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    1. Proponents of the law claim it will increase the income of gas station owners. Opponents claim it will hurt gas station owners because they will lose customers.

    2. Proponents claim consumers will be better off because gas stations will provide better service. Opponents claim consumers will be generally worse off because they prefer to buy gas at cheaper prices.

    3. Proponents claim that they are helping gas station owners without hurting anyone else. Opponents claim that consumers are hurt and will end up doing things like buying gas in a nearby state or on the black market.