MIEC Final Solution TB26 Group 4 -Yu Ting, Hao Xue, Jocelyn,Divya by Divya Gopalan

QN 4

divyagopalan99 — 2016-05-16 03:45:25 UTC

Would a price floor on milk be effective? Why or why not? Would a price floor on designer sunglasses be effective? Why or why not? (Hint: recall the objective of implementing price floors and think about the price elasticity of demand for milk and designer sunglasses)

Divya

designer sunglass

spartating — 2016-05-16 03:58:43 UTC

-A price floor on designer sunglasses would not be effective.
-Designer sunglasses are more expensive.
-Producers are not even trying to sell below the price equilibrium.
-Consumers will continue to be overcharged .
-Consumers are very responsive in the price change of designer goods
-demand is price elastic

YU TING

price floors are implemented to ensure producers get a higher and more stable income then they would otherwise earn

spartating — 2016-05-16 04:12:35 UTC

YU TING

Answer of question 4

haoxuewg — 2016-05-16 09:13:57 UTC

A price floor (“PF”) is a legally established minimum price above the market equilibrium. In the producers’ perspective, the price floor is imposed to ensure producers a higher and more stable income during a period of falling prices.

Yes. This will be effective on milk as since it is a necessity, an increase in minimum price for sale of milk from equilibrium will not change its quantity demanded. At the same time, it also protects the agricultural farmers with a minimum wage. Since % change in quantity<% change in Price, |Ed| is <1. Consumers are not very responsive to the price change of milk. Demand is hence price inelastic.

No. Ineffective on sunglasses as it is a luxury. An increase in minimum price for sale of sunglasses from equilibrium will decrease its quantity demanded. More substitutes of lower prices will be bought. Since % change in quantity>% change in price, |Ed|>1. Consumers are very responsive to the price change of sunglasses. Demand of sunglasses is hence price elastic.

HaoXue

Q4

divyagopalan99 — 2016-05-16 14:54:52 UTC

A price floor is a legally established minimum price above the market equilibrium. Sales below the price floor are not permitted by the government. It is imposed during a period of falling prices.

A price floor on milk will be effective as milk is a necessity. Price elasticity is an inverse between price and quantity demanded. If a good is considered a necessity, its demand will be more price inelastic. An increase in the price of milk due to price floor being imposed will not cause consumers to be very responsive to the price change. When the absolute value of |Ed| is < 1, the % change in Quantity demanded < % change in price. Therefore, demand of milk will be price inelastic.

A price floor on designer sunglasses will not be effective as it is a luxury. If a good is considered a luxury, its demand will be more price elastic. An increase in the price of the sunglasses will cause consumers to be very responsive to the price change. They will look for other substitutes. The greater the number of substitutes available to consumers, the more price elastic the sunglasses will be. When the absolute value of |Ed| is > 1, the % change in Quantity demanded > % change in price. Therefore, demand of designer sunglasses will be price elastic.

Divya

Price Elasticity of Demand

divyagopalan99 — 2016-05-16 15:23:26 UTC

- Measures the responsiveness of quantity demanded of a good to a change in its own price.

Divya

Final Solution

divyagopalan99 — 2016-05-17 04:24:54 UTC

A price floor is a legally established minimum price above the market equilibrium. Sales below the price floor are not permitted by the government. It is imposed during a period of falling prices.

A price floor on milk will be effective as milk is a necessity. Price elasticity is an inverse relationship between price and quantity demanded. If a good is considered a necessity, its demand will be more price inelastic. An increase in the price of milk due to price floor being imposed will not cause consumers to be very responsive to the price change. Since % change in quantity<% change in Price, |Ed| is <1.Hence, demand of milk will be price inelastic.

A price floor on designer sunglasses will not be effective as it is a luxury. If a good is considered a luxury, its demand will be more price elastic. An increase in the price of the sunglasses will cause consumers to be very responsive to the price change. More substitutes of lower prices will be bought. Since % change in quantity>% change in price, |Ed|>1.Hence, demand of designer sunglasses will be price elastic.

Hao Xue, Yu Ting, Jocelyn, Divya

Q4

divyagopalan99 — 2016-05-17 05:04:39 UTC

Milk-
It will be effective if a price on milk is enforced as it will ensure producers a more higher and stable income. It will also ensure that workers have a minimum standard of living. This will also ensure that producers cannot sell at a higher price than the ceiling price when the price of milk is rising and thus consumers will not be overcharged.

There will be a price control on milk so that this neccessity will not be overcharged to the consumers.

If surpluses are created, the government can step in to buy up the surplus and may distribute the milk to the poor.

Sunglasses-
It will be not be very effective if a price floor is imposed on the designer sunglasses have changes in demand overtime. Producers also design many kinds of sunglasses that can appeal to different consumers with different tastes. The demand for designer sunglasses depends on how trendy the designs are and also the seasons in a country. eg. if a large amount of sunglasses are produced during winter and the designs are not appealing to consumers. If a price floor is enforced, the consumers will not want to buy the sunglasses as they are not considered a necessity during winter. Thus the demand of the sunglasses will drop and the producers will not have a stable income and this might also lead to mass unemployment due to the short of income. If sunglasses does not have price floor, the consumers will still be willing to buy the sunglasses at a cheaper price compared to during summer. This will still ensure that producers will still have an income compared to very less income if a price floor is imposed on their designs. As sunglasses are not entirely a necessity, consumers have the right to choose whether they are willing to buy them or not.

Jocelyn

MILK

spartating — 2016-05-17 05:06:44 UTC

-A price floor on milk will be effective.
-Milk is a necessity
-consumers are not responsive in the price change of necessities
-Even if there is a price change in milk , people will still be willing to buy as it is a necessity
-Thus, Quantity demanded will not decrease
-demand is price inelastic
YU TING

kinya_fujiwara — 2016-05-23 03:46:26 UTC

effective = TR increase
ineffective = TR decrease