Question

A recent study found that the demand and

supply schedules for Frisbees are as follows:

Price per Quantity Quantity

Frisbee Demanded Supplied

$11 1 million Frisbees 15 million Frisbees

10 2 12

9 4 9

8 6 6

7 8 3

6 10 1

a. What are the equilibrium price and quantity

of Frisbees?

b. Frisbee manufacturers persuade the government

that Frisbee production improves

scientists’ understanding of aerodynamics

and thus is important for national security. A

concerned Congress votes to impose a price

floor $2 above the equilibrium price. What is

the new market price? How many Frisbees

are sold?

c. Irate college students march on Washington

and demand a reduction in the price of

Frisbees. An even more concerned Congress

votes to repeal the price floor and impose a

price ceiling $1 below the former price floor.

What is the new market price? How many

Frisbees are sold?

Answer 1

(a)

Equilibrium is attained at the point where the quantity demanded is equal to the quantity supplied. Hence the equilibrium quantity is 6 million Frisbees and the equilibrium price is $8 dollars per frisbee.

(b)

A price floor of $2 above the equilibrium price means that the new market price will be $8+$2=$10. The quantity demanded of Frisbees is 2 million while the quantity supplied is 12 million.

(c)

A price floor which should be $1 less than the former price floor will lead to a market price of $9. The quantity demanded of Frisbees will be 4 million while the quantity supplied will be 9 million.