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1.
a. 40 units will be traded since that is all that buyers are willing and able to
buy at the price floor of $50 per ton.
b. The government will have to purchase the surplus, limit imports from
abroad, or control the production and sale of rice.
2. a. There is excess demand equal to 250 units (600 – 350).
b. Only 350 apartments will be rented.
c. Since the price ceiling is non-binding, the market will move to
equilibrium, where 400 apartments will be rented. There will be neither
excess supply nor excess demand.
3. a. This is a straight line demand curve since for every $0.50 increase in price,
the quantity of bottles demanded falls by a fixed amount (100).
b. Demand is inelastic for this price change.
500  400

 500  400 


2
100 0.50


450
1.25
  0.55
E
1  1.50
 1  1.50 
 2 
c. Demand is elastic for this price change.
E
200  100
2.50  3

 200  100   2.50  3 

  2 
2
100 0.50

150 2.75
  3.66

d. As we slide down the demand curve, the price elasticity of demand
changes from
–0.366 to –0.55, that is, it becomes less elastic.
e.
P
1.00
1.50
2.00
2.50
3.00
Qd
500
400
300
200
100
Total Revenue
500
600
600
500
300
f. From the table in part e, we can confirm that an increase in price in the
inelastic range (from $1 to $1.50) led to an increase in total revenue from
$500 to $600, while an increase in price in the elastic range (from $2.50 to
$3.00) led to a decrease in total revenue (from $500 to $300).
4.
a. It is not a straight line demand curve since quantity demanded does not fall
by a fixed amount as price rises by a fixed amount.
b. Demand is elastic for this price change.
230  150
3 4

 230  150   3  4 

 

2

  2 
80 1


190 3.5
 1.47
E
c. Demand is elastic for this price change.
150  90
54

 150  90   5  4 

 

2

  2 
60 1


120 4.5
 2.25
E
d. There must be good substitutes available for rosebushes from Rosie’s
Nursery (either other types of plants or rosebushes from Rosie’s
competitors), given that over this range of prices, it is unlikely that
rosebushes make up a significant share of a household’s budget.