Chapter 8. Chapter 8 (Chapter 5 Macro)

Step 1

Work It Out
Chapter 8 (Chapter 5 Macro)
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You must read each slide, and complete any questions on the slide, in sequence.

Question

Suppose that the market for coats can be described as follows:

A table with five rows and three columns. The column headers are Price, Quantity demanded (millions of coats), Quantity supplied (millions of coats). The values in the second row are 120 dollars, 16, 20. The values in the third row are 100 dollars, 18, 18. The values in the fourth row are 80 dollars, 20, 16. The values in the fifth row are 60 dollars, 22, 14.
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Step 2

Question

Suppose the government sets a price ceiling of $80. There will be a tA97V3OR5G8l5x55gfoARdAaYfC+7HIR9FBOywD+ZyI= of f/jk6iOzwB61WWLH million coats.

Correct! A price ceiling only works when it is placed below the equilibrium price, which is true in this case. At a price of $80, a 4 million coat shortage is created since quantity demanded will be 20 million and quantity supplied will be 16 million.

A table with five rows and three columns. The column headers are Price, Quantity demanded (millions of coats), Quantity supplied (millions of coats). The values in the second row are 120 dollars, 16, 20. The values in the third row are 100 dollars, 18, 18. The values in the fourth row are 80 dollars, 20, 16. This row is highlighted in yellow. The values in the fifth row are 60 dollars, 22, 14.
Sorry! Since the price ceiling of $80 is less than the equilibrium price, think about the values of quantity demand and supply at that price. To review how to determine equilibrium price and quantity using supply and demand, please see the section “Equilibrium and the Adjustment Process."
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Step 3

Question

Given that the government sets a price ceiling of $80, consumers will be willing to pay $ 6KlDrD8aKNUKY4uXREfqMvKk+cc= per coat (i.e., the true price). If people who line up to get a coat value their time at $10 an hour, they will wait in line for O4rPxswPIDea3ndC hours to obtain a coat.

Correct! The price ceiling of $80 per coat will lead to an amount sold of 16 million coats. At this quantity, buyers are willing to pay a true price of $120 per coat for 16 million coats. This is $40 more than the government's price ceiling of $80. Buyers pay this extra cost by waiting in line. If each buyer values their time at $40 per hour, then they will be willing to wait in line for 4 hours ($40 / $10) for a coat.

A table with five rows and three columns. The column headers are Price, Quantity demanded (millions of coats), Quantity supplied (millions of coats). The values in the second row are 120 dollars, 16, 20. The cells in the first and second columns in this row are highlighted in yellow. The values in the third row are 100 dollars, 18, 18. The values in the fourth row are 80 dollars, 20, 16. The cells in the first and third columns in this row are highlighted in yellow. The values in the fifth row are 60 dollars, 22, 14.
Sorry! Remember that the true price would be the amount of money actually paid plus opportunity cost. To review how to determine the true price, please see the section “Equilibrium and the Adjustment Process."
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