Explain the meaning of price ceiling

Reference no: EM131064736

PART I: MICROECONOMICS

a)Explain the meaning of price floor. When is it binding? By using an appropriate diagram explain the possible effects of a price floor if it is binding.

b)Explain the meaning of price ceiling. When is it binding? By using an appropriate diagram explain the possible effects of a price ceiling if it is binding.

2.By using an appropriate diagram, show that any government intervention to the market of a product causes a decrease in the total welfare. You can choose any type of intervention as an example.

3.Suppose there are two separate labor markets for women and for men. Since it is supposed by the firms that the productivity of men's labor is higher than women's labor, the demand for women's labor is flatter than the demand for men's labor. Also the supply of women's labor is less and steeper than the supply of men's labor.

a)Draw two separate graphs for these two markets and show the market equilibrium.

b)Suppose that government imposes same rate of unit tax (tax on consumer) to both labor. Show the changes in both markets.

c)Suppose government decides to cancel the tax on women labor. Show the changes in both markets.

4.Suppose that one of the firms in a perfectly competitive market use a new technology in the production which causes a decrease in in the production costs. Examine the short-run and the long-run effects of this new technology by using diagrams.

5.Define the concept of "contestability". Explain the difference between competitive and contestable markets. Explain how the outcomes (price, quantities, etc.) in contestable markets can be closer to the outcomes in the competitive markets.

6.Using appropriate diagrams,

a)Show how a monopolistic firm can achieve to obtain supernormal profit

b)Show that a unit tax imposed on the good produced by a monopolist decreases the monopoly profit.

PART II: MACROECONOMICS

1.Explain the followings,

a)Why the relation between interest rates and the money demand is negative.

b)Why the relation between the general price level and the aggregate demand is negative.

2.Would inflation be still costly if it were constant and fully anticipated all the time? Explain.

3.Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following government policies will move the economy from one long-run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output?

a)There is an increase in taxes on households.

b)There is an increase in the quantity of money.

c)There is an increase in government spending.

4.a)Explain how central banks determine (or control) money supply by using discount rate. Are there any other policy tools, which are used by central banks? If so, explain.

b)By using AS-AD analysis show the consequences of tight monetary policy in the short and long run. You may assume that the economy is in the long run equilibrium before tightening money.

c)What can be the possible effects of this discount rate "jump" in foreign exchange markets? Support your answer by showing on appropriate diagram(s).

5.If the Central Bank increases the required reserve ratio what will happen to interest rate? Briefly mention money creation process and the role of reserve requirement. Using diagram, show equilibrium in the money market. (Use money supply-money demand diagram).

6.Consider an economy in the long run equilibrium and suppose it is affected by a sudden cost shock (increase in costs).

a)By using AS-AD analysis show the possible short run and the long run economic consequences of this shock.

b)Suppose Government does not prefer to wait the long run adjustment of this shock and decides to intervene to the economy at which Central Bank is not independent. Which economic polic(ies)y can the government use? How? What can be the possible effects of this (or these) polic(ies)y in the short and the long run?

c)According to your answer to "b" discuss the importance and the necessity of the central bank independency from the government. By using AS-AD show the long run consequence of using central bank's tolls for expanding economic policies.

7.By using appropriate diagrams explain the possible effects of expansionary fiscal and monetary policies in the short run and long run. Briefly explain the reasons for and mechanism of the long run adjustments.

Reference no: EM131064736

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