10e_Essay_Test_Bank_Ch_5_FINAL

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1、Chapter5:UsingSupplyandDemandEssayQuestions1.AsaresultoftherapidgrowthoftheChineseeconomy,worlddemandforpetroleumproductshasincreasedsignificantly.Atthesametime,thewarinIraqhasreducedthatnation'spetroleumproductionandexportstolevelsthatarewellbelowpre-warlevels.Botheventshaveh

2、adsignificantimpactsonworldoilprices.Howwouldthesimplesupplyanddemandmodelapplytothiscase?Answer:Usingsimpledemand/supplyanalysis,onewouldexpectthat,theincreaseinChineseincomeswouldshifttheworlddemandcurveforoiloutward.Thiswouldraiseboththeequilibriumpriceandquantity.Thedeclin

3、einIraqioilproductionwouldshifttheworldsupplycurvetotheleft.Thiswouldaddtotheforcespushingupworldoilprices.However,thedecreaseinsupplywouldhavetheoppositeeffectontheequilibriumquantityastheincreaseinChinesedemandforoil.Thuswecouldnotbesurehowtheequilibriumquantitywouldmove.Ift

4、heincreaseinChinesedemandwasgreaterthanthedecreaseinIraqisupply,thentheequilibriumquantitywouldincrease.TheequilibriumquantitywoulddecreaseifthedecreaseinIraqisupplywasgreaterthantheincreaseinChinesedemand.2.Whatisapriceceiling?Whatisapricefloor?Givearealworldexampleofeach.Wha

5、thappenstotherelationshipbetweenquantitydemandedandthequantitysuppliedwithaneffectivepriceceiling?Whathappenstotherelationshipbetweenquantitydemandedandthequantitysuppliedwithaneffectivepricefloor?Whatislikelytohappenifthereisashortageofrentcontrolledapartments?Whatislikelytoh

6、appenifthereisasurplusofpricesupportedgrain?Answer:Apriceceilingisagovernment-imposedlimitonhowhighapricecanbecharged.Withaneffectivepriceceiling,quantitydemandedexceedsquantitysupplied.Thereisa“shortage.”Apricefloorisagovernment-imposedlimitonhowlowapricecanbecharged.Withanef

7、fectivepricefloor,quantitysuppliedexceedsquantitydemanded.Thereisa“surplus.”Whenthereisashortageofrentcontrolledapartments,therewillbeatendencyfortenantstomake“underthetable”paymentstolandlords.Whenthereisasurplusofgrains,therewillbepressuretodestroythesurplus(ordumpitonforeig

8、nmarkets).3.Defineanexcisetaxandgivethreeexamples.Explainther